LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 

I 

Class 


A  PRACTICAL  AND  VALUABLE  WORK. 


THE  SCIENCE  OF  WEALTH: 

A  MANUAL  OF  POLITICAL  ECONOMY, 

EMBRACING  THE 

Laws  of  Trade,  Currency,  and  Finance, 

CONDENSED  AND  ARRANGED  JFOR  POPULAR  READING 

AND    USE    AS    A    TEXT-BOOK. 

BY  AMASA  WALKER,  LLD., 

Late  Lecturer  on  Public  Economy,  Ainherst  College. 

STUDENT'S  EDITION, 

Complete  in  One  12mo  Volume.     Extra  Cloth.     $1.50. 


OPINIONS  UPON  THE  MERITS  OF  THE  WORK, 

"  Our  country  has  produced  no  work  on  the  subject  that  is  better  worth 
reading." — The  Nation. 

"  We  strongly  recommend  the  adoption  of  Mr.  Walker's  work  as  a  text- 
book in  our  colleges  all  over  the  country.  It  has  every  quality  to  fit  it 
for  profitable  use  in  instruction." — New  York  Eveniny  Post. 

"  I  am  much  pleased  with  the  clearness  with  which  your  positions  are 
stated  and  illustrated,  and  the  power  of  condensation  you  have  been 
able  to  combine  with  this  perspicuity." —  William  Cullen  Bryant. 

"  It  is  an  excellent  manual,  and  well  worthy  of  the  popularity  it  has 
attained." — Baltimore  Gazette. 

"  The  author  of  this  volume  has  made  a  valuable  addition  to  the 
American  literature  of  political  economy." — North  American  Review. 

"  No  writers  of  the  present  day  are  better  guides  than  Mr.  Mill  and 
Dr.  Walker  to  persons  desirous  of  obtaining  information  on  the  subject 
of  Political  Economy.  Both  are  profound  thinkers,  actuated  by  deep 
and  honest  convictions,  while  their  treatment  of  the  subject  is  such  that 
there  is  little  in  the  work  of  either  writer  that  a  man  of  ordinary  edu- 
cation would  find  it  difficult  to  comprehend.  Mr.  Walker's  familiarity 
with  the  present  condition  and  needs  of  our  own  country,  renders  his 
book  of  greater  political  worth  to  the  merchant  and  workman  as  well  as 
the  student." — New  York  Times. 


"  No  book  has  been  published  in  the  United  States  with  the  same  prac- 
tical scope  and  design The  practical  aspects  of  the  science 

prevail  throughout." — Springfield  Republican. 

"We  feel  justified,  therefore,  in  saying  that  no  system  of  economical 
science,  known  to  us,  is  so  largely  the  result  of  a  practical  acquaintance 
with  manufacture,  banking,  and  trade  as  this  of  Mr.  Walker's."— Mer- 
chants Magazine. 

"Dr.  Walker's  present  volume  is  a  condensation  and  abridgment  of  his 
larger  work  with  the  same  title,  which  appeared  some  years  ago  and 
ran  through  several  editions.  The  book  is  carefully  arranged,  and  the 
index  and  table  of  contents  are  full  and  correct.  It  will  doubtless  win 
its  way  into  favor  as  a  text-book  for  students." — -New  York  World. 

"J.  B.  Lippincott  &  Co.  have  issued  a  new  and  revised  edition  of  Dr. 
Walker's  well-known  Science  of  Wealth,  which  has  long  been  recog- 
nized as  a  standard  hand-book  of  political  economy  and  an  authority  on 
the  laws  of  trade  and  finance.  The  present  volume  is  a  condensation 
rather  than  an  abridgment  of  the  work  as  first  published,  and  in  its 
present  shape  is  admirably  adapted  for  a  text-book,  which  will  meet  a  want 
much  felt  in  the  higher  classes  of  our  academies  and  schools.  In  this 
work  political  economy  is  treated  as  a  universal  science,  regardless  of  the 
interests  of  particular  sections  of  countries,  which  must,  of  course,  limit 
its  effects  in  special  cases.  In  a  country  like  ours,  where  every  citizen 
is  called  upon  to  consider  and  decide  for  himself  upon  great  questions  of 
national  policy,  an  understanding  of  at  least  the  rudiments  of  this  science 
is  important  to  every  one ;  and  the  youth  of  America  are  particularly  for- 
tunate in  possessing  a  work  in  which  its  principles  are  so  clearly  and 
fully  set  forth." — Boston  Commercial  Bulletin. 

"  There  is  much  ability  displayed  in  the  work,  and  the  author's  views 
are  set  forth  with  great  clearness  and  force.  .  .  .  Mr.  Walker's  views 
on  the  subject  of  labor  and  combinations  of  labor  strike  us  as  excellent 
and  suited  to  the  times.  His  views  under  the  head  of  Consumption  are 
also  excellent.  The  work  as  a  whole  is  a  good  one  for  all  persons  to 
read." — Ohio  Educational  Monthly. 

"  The  Philadelphia  publishers  have  just  issued  Amasa  Walker's  able 
work  on  the  Science  of  Wealth,  condensed  and  arranged  for  popular 
reading  and  a  manual  of  Political  Economy;  a  subject  of  vast  impor- 
tance, but  of  which  few  know  anything,  and  many  writers  have  darkened 
with  elucidations  and  bewildering  entanglements." — New  York  Golden 
Age. 

"  This  an  excellent  manual  of  Political  Economy,  embracing  the  laws 
of  Trade,  Currency,  and  Finance,  condensed  and  arranged  for  popular 
reading  and  use  as  a  text-book." — Arkansas  Journal  of  Education* 


"The  propositions  brought  forward  are  candidly  stated,  and  great 
care  is  taken  to  make  each  demonstration  so  simple  as  to  bring  it  within 
the  grasp  of  those  professing  ordinary  intelligence.  We  should  think 
that  the  work  would  be  found  very  useful  to  students  and  others  seeking 
information  on  this  important  theme.  Prof.  Walker  has  held  many 
public  positions  in  Massachusetts  and  represented  the  State  in  Congress, 
is  a  man  of  wide  experience  in  business,  high  personal  character,  and 
general  cultivation." — Phila.  Age. 

"It  is  a  very  complete  treatise  on  the  subject  with  which  it  deals." — 
Pittsburgh  Leader. 

"  We  have  never  met  with  a  book  so  well  adapted  to  the  use  of  young 
men  who  desire  a  thorough  fundamental  knowledge  of  the  subject  as  the 
work  at  the  head  of  this  article.  .  .  .  We  bespeak  for  it  a  welcome 
from  all  men  who  desire  to  see  clearly  the  distinction  between  truth  and 
fallacy,  and  to  build  up  intelligent  popular  convictions  on  the  topics  of 
which  it  treats." — American  Journal  of  Education. 

"  In  it  present  form  the  book  furnishes  a  clear  and  interesting  state- 
ment of  all  the  important  facts  and  theories  of  the  science.  Mr.  Walker 
is  a  skillful  manipulator  of  figures,  and  altogether  among  the  best  statis- 
ticians of  the  times.  We  commend  the  work  as  being,  by  reason  of  its 
clearness  of  arrangement  and  style,  one  of  the  best  books  in  Political 
Economy  with  which  we  are  acquainted." — Boston  Journal. 

"  Mr.  Walker  is  not  unknown  to  the  public  as  an  author  in  this  depart- 
ment of  literature.  The  present  volume  presents  his  carefully  prepared 
opinions  upon  Trade,  Currency,  and  Finance,  and  will  be  a  valuable 
manual  of  Political  Economy  for  schools  and  for  general  reading." — 
Maine  Journal  of  Education. 

"  This  work  promises  to  be  a  standard,  as  was  that  first  published  in 
1866.  It  is  an  intelligent  presentation  of  the  laws  by  which  the  Trade, 
Currency,  and  Finance  of  the  country  are  governed,  and  of  the  princi- 
ples which  underlie  commerce  between  nations.  The  study  of  Political 
Economy  is  one  of  interest  to  all  thinking  men  j  but  works  on  the  subject 
are  sealed  books  to  the  masses,  whereas  with  a  work  like  this  in  hand, 
rough  places  become  plain  and  difficulties  seem  to  vanish." — Pennsylvania 
School  Journal. 

"Dr.  Amasa  Walker  is  one  of  the  most  voluminous  writers  on  the 
subject  of  Political  Economy.  The  result  of  his  long  studies  may  be 
considered  to  be  comprehended  in  the  volume  before  us.  ...  There 
is  much  to  commend  in  the  chapters  on  Trades,  Strikes,  Currency,  Tax- 
ation, etc." — Phila.  Evening  Bulletin. 

"  I  have  examined  it,  like  it  well,  and  hope  it  may  be  generally  intro- 
duced."— A.  S.  WELSH,  President  of  Iowa  State  Agricultural  College. 


"It  is  a  most  valuable  work,  and  exceedingly  well  fitted  for  use  as  a 
text-book.  Political  Economy  owes  much  to  its  author." — Prof.  BASCOU, 
Williams  College. 

"  I  regard  it  as  one  of  the  most  valuable  of  recent  contributions  to  the 
science,  because  of  the  soundness  of  the  principles  it  inculcates  with  ad- 
mirable clearness,  and  of  its  general  adaptability  to  the  wants  of  the 
teacher." — A.  D.  WELT,  President  of  Miami  Commercial  College,  Dayton, 
Ohio. 

"  I  like  the  work  much  for  its  compression  into  reasonable  limits — for 
the  new  matter  it  contains — for  its  positiveness  where  conclusions  have 
been  reached.  I  have  adopted  it  as  text-book." — Rev.  D.  M.  GUAHAM, 
D.D.,  President  of  Hillsdale  College,  Mich. 

"I  regard  it  as  altogether  the  best  treatise  on  the  Currency  that  has 
yet  been  published.  I  have  always  taken  pains  to  recommend  it  to  my 
classes." — Prof.  J.  L.  DIMAN,  Brown  University. 

"  We  have  used  the  original  work  with  some  of  our  classes,  and  I  am 
glad  to  see  this  cheaper  and  more  compact  form  of  the  work." — T.  C. 
ABBOT,  President  of  State  Agricultural  College,  Mich. 

"It  is  a  very  valuable  book  for  the  student  of  Political  Economy. 
I  know  of  no  one  who  puts  his  views  into  clearer  form  than  does  Mr. 
Walker."— ELLICOTT  EVANS,  President  of  Hamilton  College. 

"  I  have  used  the  original  work  with  our  senior  classes  for  five  years 
know  it  very  thoroughly  and  approve  it  very  highly.     .     .     .     Should  be 
unwilling  to  exchange  the  work  as  a  text-book  for  any  I  know." — H.  D. 
KITCHELL,  President  of  Middleburg  College. 

"  I  very  cheerfully  recommend  the  Science  of  Wealth  as  well  adapted 
to  the  wants  of  the  class  of  pupils  for  whom  it  is  prepared.  I  shall 
place  it  in  the  hands  of  my  class  in  my  own  school  in  a  few  months." — 
E.  S.  TRISBEE,  M.A.,  Principal  of  High  School,  Binghamton,  N.  Y. 

"  I  have,  during  the  past  year,  made  use  of  Dr.  A.  Walker's  Science  of 
Wealth  in  the  new  and  condensed  form  he  has  given  it,  in  giving  instruc- 
tion to  the  senior  class  here  in  Political  Economy,  and  have  found  the 
book  better  adapted  than  any  other  with  which  I  am  acquainted  for  use 
in  a  college  class-room.  It  is  clear,  compact,  and  ample  in  its  illustra- 
tions."— Prof.  JULIUS  H.  SEELYE,  Amherst  College. 


***  For  sale  by  Booksellers  generally,  or  will  be  sent  by  mail,  post- 
paid, upon  receipt  of  the  price  by 

J.   B.   LIPPINCOTT  &  CO.,   Publishers, 

715  and  717  Market  Street,  Philadelphia. 


THE 


SCIENCE    OF  WEALTH. 


THE 


SCIENCE  OF  WEALTH: 

A  MANUAL  OF  POLITICAL  ECONOMY, 


EMBRACING    THE 


LAWS  OF  TRADE  CURRENCY  AND  FINANCE, 


CONDENSED   AND    ARRANGED 


FOR    POPULAR    READING 
AND  USE  AS  A  TEXT-BOOK. 


BY  AMASA  WALKER,  LL.D., 

LATE  LECTURER  OX   PUBLIC  ECONOMY,  AMHERST   COLLEGE. 


OF  THE 

UNIVERSITY 

OF 
iL«»P«* 

J.   B.   LIPPINCOTT   &    CO. 


Entered  according  to  Act  of  Congress,  in  the  year  1872,  by 

AMASA    WALKER,  L.L.D., 
In  tue  Office  of  the  Librarian  of  Congress  at  Washington. 


GENERAL 


PEEFAOE. 


"THE  SCIENCE  OF  WEALTH"  was  first  published  by 
Messrs.  Little,  Brown  &  Co.,  of  Boston,  in  1866.  From 
the  sixth  edition  of  that  work,  issued  in  1871,  the/ollow- 
ing  has  been  prepared.  It  is  a  condensation  rather  than 
an  abridgment ;  nothing  essential  having  been  omitted, 
while  much  new  matter  has  been  introduced.  The  motive 
for  doing  this  has  been  twofold :  first,  to  make  the  work 
more  generally  accessible, — better  adapted  to  popular  use  ; 
and  secondly,  and  especially,  to  furnish  a  text-book  on 
political  economy,  which  in  size,  cost,  and  arrangement 
should  meet  more  satisfactorily  the  present  demand  than 
any  heretofore  provided. 

Whether  these  objects  have  been  successfully  accom- 
plished in  the  present  volume,  others  can  more  impartially 
decide  than  the  author  himself;  but  from  the  deep  interest  he 
feels  in  a  science  to  which  he  has  devoted  the  greater  part 
of  a  somewhat  protracted  life,  and  his  long  experience  with 
college  classes,  he  is  led  to  hope  that  he  has  gained  that 
practical  knowledge  of  the  wants  of  the  student  which,  in 
some  measure,  qualifies  him  for  the  task  he  has  undertaken. 

The  work  now  offered  the  public,  to  teachers,  and  others, 
is  intended  to  be  entirely  impartial. 

Political  economy  can  recognize  no  party  interests,  no 
national  boundaries,  no  prescriptions,  no  assumed  antag- 
onisms between  the  industries  of  different  countries  or 
between  the  different  parties  to  production  in  the  same 
country.  Founded,  like  everv  true  science,  upon  the  ob- 

1*  (V) 

100795 


VI  PREFACE. 

servation  of  facts,  its  purpose  is  to  show  what  those  facts 
teach.  It  pays  no  deference  to  the  opinions  or  the  preju- 
dices of  mankind.  Its  only  inquiry  must  be,  ''What  is 
truth?"  assured  that  in  the  answer  to  that  question  will 
be  found  the  highest  interests  of  humanity.  Political 
economy  may  with  great  propriety  be  called  the  universal 
science,  it  being  that  in  a  correct  knowledge  of  which 
every  person,  old  or  young,  employer  or  employe,  has  a 
direct  personal  interest.  It  is  not  essential  to  the  welfare 
of  the  State  that  every  one  should  understand  chemistry 
or  astronomy,  but  it  is  of  vital  importance  to  the  public 
welfare  that  every  citizen  should  intelligently  comprehend 
those  laws  by  which  the  trade,  currency,  and  finance  of 
the  country  are  governed.  Public  opinion,  right  or  wrong, 
as  expressed  through  the  ballot-box,  will  control  the  legis- 
lation of  the  country,  and  determine  its  economic  policy. 

Fortunately  the  principles  of  this  science  are  easily  un- 
derstood, when  properly  presented  ;  and  the  experience  of 
some  twenty  years  with  different  classes  has  satisfied  the 
author  that  students  in  general  enter  upon  this  study  with 
greater  alacrity,  and  pursue  it  with  a  higher  zest,  than 
almost  any  other.  There  is  a  sufficient  reason  for  this,  for 
it  is  at  once  discovered  that  every  topic  of  which  it  treats 
has  an  immediate  interest, — that  the  questions  it  discusses 
are  those  upon  which  they  are  certain  to  be  called  upon  to 
act  whenever  they  assume  the  duties  of  citizens  in  public 
or  private  life, — that  while  they  might  vote  intelligently 
upon  most  subjects  of  public  concern  without  any  special 
acquaintance  with  many  of  the  sciences,  they  could  not, 
without  a  knowledge  of  political  economy,  act  understand- 
ingly  in  regard  to  the  trade  and  industry  of  the  country 
and  the  relations  of  capital  and  labor. 

In  a  country  where  every  citizen  has  the  right  of  suf- 
frage, its  legislation  must  ever  be  in  accordance  with  the 
popular  will.  Whatever  the  people  believe  their  interests 


PREFACE.  vil 

to  demand,  their  servants,  in  the  halls  of  legislation,  will 
certainly  grant,  for  they  are  sure  to  act  in  accordance  with 
the  views  of  their  constituents,  whether  those  views  are 
right  or  wrong.  Hence,  if  the  people  are  so  well  informed 
as  to  demand  wise  enactments,  they  will  have  them ;  if 
they  ask  for  measures  injurious  to  their  interests,  they  are 
equally  certain  to  obtain  them. 

These  considerations,  the  force  of  which  no  one  can  fail 
to  appreciate,  render  a  knowledge  of  this  science  of  high 
importance  in  the  estimation  of  all  reflecting  minds. 

It  may  be  added  that  the  study  of  it  need  not  be  con- 
fined to  those  merely  who  are  far  advanced  in  general  edu- 
cation. Common  sense  and  a  good  knowledge  of  the  Eng- 
lish language  only  are  requisite  to  its  successful  pursuit. 
Intelligible  and  plain,  the  science  has  no  abstractions,,  no 
fanciful  theories. 

Although  desirable  that  the  instructor  should  be  familiar 
with  the  subject  himself,  it  is  by  no  means  indispensable. 
With  a  well-arranged  text-book  in  the  hands  of  both  teacher 
and  pupil,  with  suitable  effort  on  the  part  of  the  former  and 
attention  on  the  part  of  the  latter,  the  study  may  be  profita- 
bly pursued.  We  have  known  many  instances  where  this 
has  been  done  in  colleges  and  other  institutions,  highly  to 
the  satisfaction  and  advantage  of  all  parties  concerned. 

A.  W. 

NORTH  BROOKFIELD,  MASS.,  1872. 


PREFACE  TO  FOURTH  EDITION. 


THREE  years  have  elapsed  since  the  first  issue  of  this 
manual.  In  the  mean  time  events  of  a  striking  character 
have  occurred  in  the  monetary  affairs  of  the  United  States, 
illustrating  in  a  most  remarkable  manner  the  nature  and 
effects  of  the  existing  currency.  It  may  now  be  seen  by 
reference  to  actual  facts  whether  the  predictions  made  on 
the  254th  page  of  this  work  have  been  verified  or  not, 
whether  the  developments  of  the  last  two  years  go  to 
prove  or  disprove  the  correctness  of  the  principles  laid 
down  as  governing  such  a  currency. 

Three  years  ago  our  monetary  circulation  was  generally 
regarded  with  great  favor;  it  was  thought  to  be  more 
stable  and  reliable  than  any  that  had  preceded  it;  that 
there  could  be  no  violent  convulsion,  or  any  great  scarcity 
of  money  with  high  rates  of  interest,  to  be  followed  by  a 
panic  and  the  general  suspension  of  the  banks.  All  this 
was  supposed  to  be  quite  impossible,  yet  it  has  taken  place. 
The  industry  of  the  nation  has  been  prostrated,  and  great 
distress  prevails  throughout  the  nation.  This  has  hap- 
pened, not  by  accident,  not  in  consequence  of  any  unfore- 
seen disaster  to  public  affairs,  but  in  the  most  natural 
course  of  events, — by  the  simple  operation  of  the  laws  of 
trade. 

The  panic  of  1873  was  as  certain,  in  the  light  of  science, 

as  the  succession   of  day  and  night.     It  came,  because 

under  such  a  currency  as  existed  it  must  come;  and  it 

will  come  again,  and  yet  again,  so  long  as  our  present 

(viii) 


PREFACE.  IX 

monetary  system  exists.  Expansion,  rise  of  prices,  specu- 
lation, overtrading  stimulated  by  a  redundant  circulation, 
will  follow  each  other  until  another  and  more  frightful 
catastrophe  shall  give  additional  evidence  of  the  essential 
weakness  and  viciousness  of  a  currency  consisting  of  mere 
credit,  issued  in  the  form  of  promises  to  pay  money  by  the 
government  and  the  national  banks. 

How  long  before  such  another  explosion  may  take  place 
it  is  quite  impossible  to  foresee,  since  a  great  variety  of 
causes  may  hasten  or  retard  such  an  event,  but  that  all 
the  pecuniary  interests  of  the  nation  must  be  imperiled 
until  the  true  standard  of  value  is  restored  is  certain. 

The  currency  in  use  is  not  in  harmony  with  that  of 
international  commerce.  It  gives  a  false  valuation  to 
everything  produced  within  the  country.  Hence,  as  in 
the  general  commercial  intercourse  of  the  world  all  values 
are  measured  by  the  gold  standard,  while  those  of  the 
United  States  are  measured  by  an  arbitrary  and  fictitious 
standard,  it  may  be  seen  at  once  that  trade,  and  conse- 
quently the  productive  industry  of  the  country,  must  be 
embarrassed  and  retarded  by  it.  Whether  consciously  or 
unconsciously,  every  interest  must  suffer. 

Hence  the  great  importance  of  the  subject, — hence  our 
apology  for  calling  the  attention  of  the  reader  to  it.  The 
currency  question  occupies  a  very  prominent  position  in 
this  work,  for  the  reason  that  its  author  regards  it  as,  at 
the  present  time,  especially  in  this  country,  by  far  the  most 
worthy  of  investigation  of  any  connected  with  the  science 
of  political  economy,  and  because  it  is,  of  all  others,  a 
topic  least  understood  by  those  by  whose  ballots  every 
question  must  eventually  be  decided. 

The  recent  action  of  Congress,  referred  to  on  pages 
255-258  of  the  present  edition,  has  been  such  as  to  render 
it  nearly  certain  that  the  present  abnormal  condition  of 
monetary  affairs  will  continue  for  several  years  to  come; 


X  PREFACE. 

consequently  the  subject  must  be  one  of  constant  discus- 
sion by  the  press,  upon  the  platform,  and  in  the  halls  of 
legislation.  It  is,  in  short,  the  question  of  the  hour,  to 
the  consideration  of  which  the  public  mind  should  be 
earnestly  and  persistently  directed  until  the  difficult  prob- 
lem is  satisfactorily  solved. 

A.  W. 
February,  1875. 


TABLE  OF  CONTENTS. 


BOOK  I.— DEFINITIONS. 

CHAPTER  I. — Character  of  Science. — Distinguished  from  politics,  17. — 
The  economic  circle,  18. — Man's  wants  and  nature's  supply  being  con- 
stant, political  economy  a  positive  science,  19. — How  far  affected  by 
legislation,  20. — Prejudices  which  retard  its  progress,  20. 

CHAPTER  II. — Definition  of  Wealth. — Includes  all  articles  of  value,  and 
nothing  else,  22. — Definition  of  Value. — Objects  of  human  desire,  ob- 
tained by  human  effort,  have  value,  and  none  else.  Value  is  power  in 
exchange,  and  nothing  else,  23. —  Illustrations,  chiefly  from  F.  Bastiat, 
25. 

CHAPTER  III. — Distinction  between  Value  and  Utility,  27. — Illustration,  28. 
— Material  wealth  assumed  to  be  a  good,  29. — Nature  gives  value  to 
nothing,  29. — Illustration,  30. 

CHAPTER  IV. — Definition  of  Labor,  31. — Services  of  slaves  not  labor,  32. 
— Definition  of  Capital. — The  labor  of  the  past,  32. — Growth  of  capital 
illustrated,  33. — Relation  of  Capital  and  Labor. — Competitors,  not 
antagonists,  34. — A  false  philosophy,  35. — General  Divisions  of  the 
Science. — Production,  exchange,  22. — Distribution,  consumption,  36. 

BOOK  II.— PRODUCTION. 

CHAPTER  I. — Forms  of  Production. —  Transmutation  chiefly  work  of  agri- 
culturist, 38. — Agriculture  supplies  men  and  materials  for  other  indus- 
tries, 39. — Includes  mining  and  fisheries,  40. —  Transformation  chiefly 
work  of  manufacturer,  40. — Distribution  of  manufactures,  41. — By  ter- 
ritorial advantages;  by  great  accidents,  41. — Transportation  chiefly 
work  of  merchant,  42. — Where  does  the  chemist  belong?  Illustra- 
tion, 42. — Several  forms  generally  united,  43. — Conditions  of  the  highest 
production,  44. — Division  of  labor  ;  co-operation  of  capital ;  economic 
culture,  44. 

CHAPTER  II. — Division  of  Labor. — Illustrated,  46. — How  far  carried  in 
fact?  46. 

CHAPTER  III. —  The  Advantages  of  Division  of  Labor. — Increased  dex- 
terity; better  knowledge  of  business,  46. — Time  saved  in  transition; 
invention  facilitated,  47. — Individual  abilities  adapted  to  work,  48. — 
Power  of  capital  increased;  manufactures  concentrated;  profits  re- 
duced, 49. — Apprenticeship  shortened,  50. — Social  development  facili- 
tated, 51. 

(ix) 


TABLE   OF   CONTENTS. 


CHAPTER  IV. —  The  Limitations  to  the  Division  of  Labor. — When  the  opera- 
tion can  no  longer  be  subdivided  ;  when  interested  personal  supervision 
fails;  when  the  operations  cannot  be  sufficiently  localized,  52. — By  the 
necessities  of  the  seasons;  for  example,  agriculture,  53. — Hence  tend- 
ency of  agricultural  products  to  rise  in  price;  division  of  labor  ap- 
plied to  sciences  and  professions,  54. — Specialties  recommended,  54. 

CHAPTER  V. —  The  Disadvantages  of  Division  of  Labor. — Tends  to  en- 
ervate the  laborer,  55.  —  This  may  be  avoided,  55. — Lesson  of  the 
recent  war;  tends  to  cramp  and  enfeeble  the  inind :  this  compensated, 
in  part,  by  the  greater  communicativeness,  5b'. — By  the  intimate  con- 
nection of  mental  faculties,  57. — lends  to  lower  average  of  health, 
shorten  life,  and  diminish  reproduction,  59. — Table  showing  average  of 
life  in  different  occupations,  59. — Lessens  the  number  doing  business 
for  themselves,  60. — Relation  of  this  to  the  formation  of  character,  61. 
— To  the  fairness  of  remuneration,  61. — To  steadiness  of  employment, 
62. — Balance  of  results  in  favor  of  extension  of  the  principle,  64. 

CHAPTER  VI. —  The  Co-operation  of  Capital. — Capital  is  wealth  employed 
in  reproduction,  64. — Distinction  between  capital  and  wealth,  65. — 
Fixed  and  circulating,  66. — Productive  and  unproductive  capital,  68. 

CHAPTER  VII. —  Union  of  Capital  and  Labor. — The  union  of  capital  and 
labor  effective  when  in  just  proportions;  labor  to  decide  the  amount, 
71. — That  amount  varies  in  different  countries,  71. — What  in  United 
States  ?  72.— In  Great  Britain  ?  why  Ireland  is  so  depressed,  73.— Can 
there  be  ?.  surplus  of  capital  ? — Emigration  of  capital,  76. — Its  union 
with  labor  effective,  again,  when  each  is  sure  of  its  reward,  76. — Limits 
to  its  aggregation,  78. — Freedom  of  industry,  79. — Mischief  of  multi- 
plied restrictions,  80. 

CHAPTER  VIII. — Economic  Culture. — Is  the  distinction  between  produc- 
tive and  unproductive  labor  real  ?  Adam  Smith's  list  of  unproduclive 
laborers,  80. — All  labor  productive,  81. — Field  of  economic  culture,  83. 
— Economic  culture  concerned  with  secondary  influences  of  production, 
the  rebound  from  consumption,  83. — Here  production  touches  consump- 
tion, 84. 

BOOK  III.— EXCHANGE. 

PART  I  — TRADE. 

CHAPTER  I.—  The  Principle  of  Trade.— Arises  from  division  of  labor, 
illustrated  by  savage  life,  86. — Divided  as  domestic,  carrying,  and 
foreign,  87. — Its  amount  governed  by  surplus  production,  88. — Those 
trade  most  together  whose  productions  differ,  89. — Climate,  social  con- 
dition, ethnical  peculiarities;  territorial  division  of  labor,  90. — Has  few 
limitations  and  no  disadvantages,  90. — General  principles  of  trade  are 
necessity  of  surplus,  community  of  interests,  91. — Harmonizes  indus- 
trial differences,  92. — Diminishes  wars,  93. 

CHAPTER  II. —  Obstructions  to  Trade. — Of  three  k^nds:  1st.  Physical,  ex- 
pressed by  the  term  location  ;  one  nation  produces  what  another  cannot, 
or  can  produce  more  cheaply,  93. — Illustration,  two  contiguous  nations 
separated  by  mountains;  obstacle  removed;  advantage  to  both,  94. — 
Production  increased  ;  industry  diversified,  96. — How  trade  thus  en- 
riches nations,  97. — Obstructions  the  same  in  effect  whether  natural  01 
interposed  by  government,  98. 


TABLE    OF    CONTENTS.  Xi 

CHAPTER  III. — Legal  Obstruction*,  or  governmental  interference  with 
industry  by  tariff  duties,  imposed  for  one  of  four  reasons:  to  raise  a 
revenue,  98. — To  encourage  home  industry ;  to  sustain  existing  man- 
ufactures;  to  secure  commercial  independence,  99. — Tariffs  of  two 
general  kinds:  1st,  for  revenue  only;  2<1,  for  protection,  100. — Those 
for  revenue  permit  of  free  trade,  100. — A  protective  tariff  forces  industry 
into  unnatural  channels,  and  hence  diminishes  production  and  trade, 
101. — Economical!}7,  that  government  is  best  that  governs  least,  101. 
— No  sense  so  subtile  as  that  with  which  man  detects  his  own  wants, 
102.— Protection  is  founded  on  the  opposite  principle,  102.— This  illus- 
trated by  the  iron  manufactures  of  the  United  States;  six  reasons  why 
this  interest  is  selected,  102. — The  five  superior  advantages  enjoyed 
for  making  iron  in  the  United  States,  103. — The  great  natural  protec- 
tion of  cost  of  importation,  104. — Why,  then,  do  we  not  make  all  we 
need?  104. — Effects  of  protection  begun  in  1816;  general  loss  to  the 
production  of  the  country,  lOfi. — Folly  of  anticipating  an  agricultural 
glut,  107. — Impolicy  of  legal  interference,  107. — Illustrated  by  the  paper 
interest  during  the  last  war,  108. 

CHAPTER  IV. — Fallacies  of  the  Protective  Theory. — Fallacy  1.  Good  policy 
to  protect  an  infant  manufacture,  109.— Protects  the  bad  and  good  alike, 
and  perverts  the  industry  of  the  country,  110. — Fallacy  2.  Protection 
especially  develops  manufactures  and  enriches  countries,  112. — Fal- 
lacy 3.  Raises  the  rate  of  wages,  114. — Fallacy  4.  Protection  a  defence 
against  pauper  labor,  115. — Fallacy  5.  A  home  market  desirable  to 
place  the  agriculturist  by  the  side  of  the  manufacturer,  117. — Fallacy 
6.  Manufactures  fatally  exhaust  the  soil,  118. — Fallacy  7.  That  home 
capital  is  especially  benefited,  119.  —  Fallacy  8.  That  free  trade  is 
especially  beneficial  to  the  mercantile  class,  120. -^Protection  a  war  of 
interests,  121. — Proof  of  this,  122. 

CHAPTER  V. — Protection  (concluded}.  Other  Obstacles  considered. — Tariffs 
imposed  to  support  existing  manufactures,  124. — The  practical  diffi- 
culty, 125. — Tariffs  imposed  to  secure  commercial  independence;  IN 
commerce  or  OF  commerce?  125. — "If  freedom  of  intercourse  were 
universal  it  would  be  well,"  126. — The  Cobden  treaty  between  France 
and  England,  127.- — Obstruction  to  trade  by  a  defective  standard  of 
value,  128. — Facts  in  proof  of  this,  128. —  Transportation  obstacles,  129. 
—Social  obstacles.  Illustrated,  130. 

\.CHAPTER  VI.— Balance  of  Trade.— The  true  state  of  trade  cannot  be 
ascertained  by  inspection  of  official  returns,  132. — Balance  of  trade, 
how  adjusted,  134. 


PART  II. — INSTRUMENTS  OF  EXCHANGE. 

CHAPTER  I. — Barter  and  the  different  forms  of  Currency. — Three  instru- 
ments of  exchange,  viz.,  barter,  currency,  different  forms  of  credit, 
136. — A  currency  wanted  to  act  as  a  medium  of  exchange,  137. — And 
as  a  standard  of  v»lue,  138. — Requirements  of  such  a  standard,  138. — 
Currency  of  four  kinds,  viz.,  money,  credit,  mixed,  and  mercantile  cur- 
rency, 139. 

CHAPTER  II. — Money. — Forms  used  in  different  ages  and  countries,  141.— • 
Advantages  of  gold  and  silver;  possess  value,  are  stable  in  value,  141. 
— Conveniently  portable,  malleable,  of  uniform  quality,  readily  alloyed 


Xll  TABLE    OF    CONTENTS. 

or  refined,  are  indestructible,  generally  diffused,  sufficiently  plentiful, 
128. — And  nearly  inconsumable  by  use,  142. — Coinage,  its  advantages, 
145.— Coin,  146. 

CHAPTER  III. — Credit  Currency. — Transfers  debts,  does  not  pa,y  them, 
146. — Folly  of  gold  bill  by  Congress,  147. — Depreciates  fixed  incomes, 
133. — Vitiates  contracts,  148. — Never  kept  to  the  natural  volume  of 
currency;  seldom  paid,  149. — In  effect  a  forced  loan;  a  direct  tax,  150. 
— Loss  to  United  States  during  late  war  from  use  of  credit  currency, 
150. 

CHAPTER  IV. — Mixed  Currency. — A  modern  invention  ;  Bank  of  England, 
151. — Composition;  value  and  credit;  its  quality  the  proportion  be- 
tween the  two  elements,  152. — Convertibility  distinguished  from  re- 
deemableness,  153.  —  Inconvertible  currency  annihilated  by  being 
redeemed,  154.  —  Liabilities  of  mixed-currency  banks,  154. — Bank 
balances  the  most  dangerous  element,  155. — Resources  of  banks ; 
definition  of  terms,  156. — Statistics  of  the  mixed-currency  banks,  158 
— Convertibility  of  their  issues,  160. 

CHAPTER  V. — Analysis  of  Deposits. — Already  defined;  arise  in  five  ways, 
162. — May  be  classified  as  compulsory,  fiduciary,  and  active,  162. — 
The  first  kept  to  secure  discounts,  164. — Highly  dangerous  to  the  cur- 
rency, 164. — Other  kinds  legitimate,  165. — Are  deposits  currency? 

'  opinion  of  Lord  Overstone,  166. — Of  New  York  Board  of  Currency, 
166.— Indeed,  more  active.  Illustration,  167. 

CHAPTER  VI. — Mixed  Currency,  Fluctuations  in  Quantity  and  Quality,  168. 
— We  have  two  great  questions  :  1st,  does  mixed  currency  perform  satis- 
factorily the  functions  of  money?  2d,  what  its  effects  upon  public 
interests?  168. — Mixed  currency  not  governed  by  laws  of  value,  169. — 
Expansion  always  in  excess,  because  it  creates  speculation  and  a  fever- 
ish demand,  170. — Contraction  takes  place  from  any  cause  which  affects 
credit,  171. — Export  of  specie  withdraws  only  its  own  amount,  171. — 
Two  classes  of  banks,  172. 

CHAPTER  VII. —  Tables  and  Diagrams  of  Mixed- Currency  Fluctuations. — 
Table  I.,  in  absolute  quantity,  United  States,  1834-59,  171. — Diagram 
1,  in  currency  and  proportion  of  specie  per  capita,  same  period,  176. — 
Table  II.,  extremes  of  fluctuation,  currency  United  States  per  capita, 
and  quality  of  same,  1834-59,  178.— Table  III.,  quality  of  currencies 
in  the  several  States,  179. — Table  IV.,  of  currency  of  Massachusetts, 
different  dates,  179. 

^  A\'CHAPTER  VIII. — Mixed  Currency  as  a  Medium  of  Exchange,  180. — Two 
offices  of  such  a  medium ;  to  transfer  commodities,  164. — Mixed  cur- 

l  3  rency  satisfactory  for  this;  to  discharge  indebtedness,  coin  always 

reliable,  180.— Unsatisfactory,  182. — Dilemma  of  banks  in  panic,  183. 

CHAPTER  IX. — Mixed  Currency  as  a  Standard  of  Value. — Vast  importance 
of  this  function,  184.— What  is  a  standard  of  value?  185.— Illustration, 
186. — Justice  of  a  uniform  and  universal  standard,  186. — How  a  mixed 
currency  performs  this  function,  187. — Price,  distinction  between  price 
and  value,  189. — Table  of  prices  for  twenty-six  years.  Shown  by  Dia- 
gram No.  2.  Explanation  of  it,  195. — Illustration  of  the  effect  of  ex- 
pansion and  contraction,  197. 

CHAPTER  X. — Effects  of  a  Mixed  Currency. — 1st.  Endangers  domestic 
tranquillity,  199. — Currency  of  Massachusetts;  savings-banks  com- 


TABLE    OF    CONTENTS.  Kill 


plicate  the  matter,  200.— 2d.  Demoralizes  society,  202.— 3d.  Endan- 
gers national  safety  in  war,  202. — Obliges  a  nation  to  carry  on  war  with 
broken-down  currency,  203. — United  States  in  great  Rebellion,  204. — 
4th.  Discourages  domestic  manufactures,  205. —  Has  always  neutralized 
our  tariff,  206. — PROTECTION  AND  CURRENCV.  Shown  by  facts  and  illus- 
trated by  diagrams,  Nos.  3  and  4.  What  the  diagrams  treat,  211. 

OHAPTER  XL — Effects  of  Mixed  Currency  (concluded). — 5th.  Disturbs 
and  enhances  interest,  212. — This  the  natural  result;  Diagram  5,  217. 
— Frequent  and  extreme  fluctuations;  highest  interest  with  greatest 
expansion;  lowest  with  least  currency,  219. — Unequal  effects  of  mixed 
currency  upon  different  industrial  interests,  220. — Oppressive  effects 
upon  agriculture  especially,  222.— Table  VI.,  222.— How  manufacturers 
are  affected,  225. — How  trade  and  transportation,  226. 

CHAPTER  XII. — Fallacies  regarding  a  Mixed  Currency. — 1st,  that  it 
increases  capital,  228. — Credit  not  capital ;  2d,  that  it  costs  less  than 
money,  228. — Instruments,  to  be  cheap,  must  be  efficient;  mixed  cur- 
rency is  not,  228. — 3d,  that  it  has  caused  the  prosperity  of  the  United 
States,  231. — No  grounds  for  the  supposition ;  4th,  that  there  is  not 
gold  and  silver  enough,  232. — 5th,  that  it  is  favorable  to  those  who 
have  little  capital,  235. — 6th,  that  we  could  not  have  banks  without  it, 
236. — Banking  may  be  profitable  without ;  illustrated  from  British  joint- 
stock  banks,  237.— 7th,  that  it  can  be  regulated  by  law,  238.— 8th,  thai 
banks  ought  to  '•  stave  off  '  suspension,  239. — 9th,  that  at  least  stock- 
holders are  enriched  by  expansion,  240. 

CHAPTER  XIII. — Mercantile  Currency. — A  substitute  for  the  precious 
metals  ;  combines  reliability  with  the  convenience  of  paper,  242. — First 
substitute  currency;  Bank  of  Genoa,  bills  based  on  full  specie:  Bank 
of  Amsterdam;  Bank  of  Hamburg;  England,  243. — English  finance 
continually  disturbed,  and  millions  of  annual  loss  involved,  for  a  paltry 
saving,  244. — The  change  of  currency  easy  to  effect,  245. — Legitimate 
banking  profitable,  246. — Needs  little  legislation;  transition  easy;/ree 
banking,  247. — Upon  what  conditions,  247. — Gold  notes,  the  true  circu- 
lating medium  upon  which  all  banking  should  be  carried  on,  248. — 
Table  VII. ;  characteristics  of  the  different  kinds  of  currency,  250. 

CHAPTER  XIV. — National  currency  of  the  United  States,  250. — In  what 
respects  it  differs  from  that  of  the  State  bank?,  251.— In  what  it  resem- 
bles the  latter,  253. — Panic  of  1873-4  255. —  Condition  of  the  currency 
in  1875,  257. — Clearing-house  certificates,  259. — Statistics,  260. 

CHAPTER  XV. — Evidences  of  Debt. — Three  kinds;  book  accounts,  262. — 
Notes,  263. — Bills  of  exchange,  263. — Exchange,  foreign  and  domestic, 
264. — Great  saving  of  expense;  indirect  exchange,  265. — Foreign  ex 
change  illustrated,  266. — Indirect  foreign  exchange  illustrated,  266. — 
Trade  of  United  States  1857,  268. — Natural  rate  of  exchange,  268. — 
Rate  of  British  exchange  explained,  269. — Value  of  the  pound  sterling. 
270. — Expense  of  shipping  gold,  271. — Are  bills  of  exchange  currency  1 
do  not  pass  from  hand  to  hand,  271. — Are  themselves  discharged  by 
currency  ;  are  generally  on  time ;  if  dishonored,  do  not  reduce  amount 
of  currency,  250. — Do  not  affect  prices,  272. 

BOOK  IV.— DISTRIBUTION 

CHAPTER  I. — Divisions  of  the  Subject. — Distribution  the  apportionment 
of  wealth,  274. — Labor,  physical,  mental,  and  subsidiary,  all  receive 
wages,  275. — Capital  loaned  in  two  forms,  one  receiving  interest,  the 


XIV  TABLE    OF    CONTENTS. 


other  rent,  275. — Government  claims  a  share  ;  we  have  therefore  to  pro- 
vide for  wages,  profit,  interest,  rent,  and  taxation,  276. 

CHAPTER  II. —  Wages. — Governed  by  laws  of  value;  vary  in  different 
countries  and  ages,  276. — Importance  of  freedom  and  equality  in  se- 
curing fair  wages ;  necessary  wages,  278. — Wages  depend  on  business 
enterprise,  278. — Distinction  between  real  and  nominal  wages;  illus- 
trated; facts  in  point,  279. 

CIAPTER  III. — Proportionate  Rise  and  Fall  of  Wages. — Do  not  rise  so 
soon  or  high  as  commodities  generally,  280. — Wages  unquestionably 
have  a  tendency  to  advance;  1810  compared  with  I860,  282. — Work- 
men better  off,  282. — Unhealthy  trades  ;  compensation  should  be  made  ; 
agricultural  wages,  for  this  reason,  lowest  of  all,  283. — Education  of 
the  laborer;  makes  liirn  more  efficient,  284. — Frugality  of  the  laborer; 
makes  him  independent,  285. — Neutralizes  the  advantage  of  the  em- 
ployer; distinction  of  sex  influences  wages,  286. — Rate  of  difference, 
286. — Equality  of  numbers;  industrial  sphere  of  woman  closely  circum- 
scribed; her  products  more  dispensable;  hence  inferiority  of  compensa- 
tion, 287. — Cannot  be  increased  by  mere  philanthropic  efforts,  288. — 
Another  classification  of  wages,  paid  respectively  for  physical,  mental, 
moral  power,  289. 

CHAPTER  IV. — Labor  Combinations. — Laborers  have  same  right  to  com- 
bine as  capitalists;  friendly  associations  of  England.  291. — Trades' 
unions ;  lawful,  but  no  coercion  may  be  employed  within  or  without 
these  unions,  292. — Strikes  lawful  within  the  same  restrictions,  294. — 
Do  not  permanently  raise  wages,  295. — Co-operative  associations  ;  ac- 
count by  Professor  Fawcett,  296. — Conclusions,  298. — Conditions  for 
co-operative  success,  299. — Managers  must  be  able  and  faithful,  299. — 
Credits  must  be  neither  given  nor  taken,  299. — Why  ?  300. — Co-operative 
partnerships,  301. — Results  of  experiments  favorable,  302. — Reduction 
of  hours  of  labor,  302. — Effects  of  restricting  the  hours  of  labor,  302. — 
Must  lessen  production,  304. — Economic  effects  upon  the  laborer,  305. — 
Illustrations,  305-6. — Laborer  a  consumer  as  well  as  producer,  306. — 
Effects  on  capital,  307. — The  increment  must  be  abridged,  307. — Equali- 
zation of  wages,  309. — Interference  with  apprenticeship,  310. 

CHAPTER  V. — Profits. — The  remuneration  of  the  business  man,  311. — 
Must  not  be  confounded  with  interest,  wages,  or  rent,  312. — The  forms 
may  be  united,  313. — Profits  of  capital  an  inaccurate  term,  314.  Rate 
of  profit  tends  to  decline,  314. — Rapidity  of  exchange;  its  effect  on 
profit  illustrated,  314. — Profits  governed  by  demand  and  supply,  315. — 
Dividends,  how  classified,  318. 

CHAPTER  VI. — Interest. — Reward  of  circulating  capital ;  justified  by  right 
of  property,  319.— Interest  dependent  on  productiveness  of  labor,  320. 
Governed  by  demand  and  supply  ;  abolition  of  British  usury  laws  ;  usury 
laws  ineffective,  320. — Increase  expense  of  borrowing,  321. — Create 
compulsory  deposits,  323. — Interest  influenced  by  unsoundness  of  cur- 
rency, 324. 

CHAPTER  VII. — Rent. — Reward  of  fixed  capital,  325.— Implies  ownership  ; 
implies  society,  325. — Land  the  foundation  of  rent,  326. — Location  the 
first  element,  327. — Fertility  the  second  element;  illustrated,  328. — 
Third  element;  population,  329. — Fourth  element;  not  proportionally 
productive  in  all  cases,  329. — Laud  appendages,  330. 

CHAPTER  VIII. — Principles  of  Taxation. — Necessity  of  government;  it 
receives  revenue ;  by  taxation,  333. — Must  be  just  and  -equal  in  a  free 
country,  334. — Principles  of  taxation  propounded  by  Adam  Smith : 


TABLE    OF    CONTENTS.  XV 

First,  equality  of  contribution,  334. — Explained  and  illustrated  ;  second, 
taxation  must  be  certain  and  plain,  335. — Third,  convenience  of  pay- 
ment to  be  considered;  fourth,  economy;  a  fifth  principle  proposed, 
taxation  of  mischievous  consumption,  338. — Forms  of  American  fixa- 
tion, 338. 

CHAPTER  IX. — National  Taxation. — 1.  Customs;  duties  of  two  kind?, 
specific  and  ad  valorem,  339. — Specific  duties  unjust;  ad  valorem  create 
fraud,  and  so  far  defeat  revenue,  340. — Customs  as  a  mode  of  taxation  ; 
easy  and  effective;  but  unjust ;  not  clear  and  plain  to  the  contributor, 
340. — Customs  expensive  on  account  of  the  machinery,  341. — Bounties 
preferable  for  protection  to  customs,  344. — Excise  as  a  mode  of  taxa- 
tion, 345. — Taxes  on  disadvantageous  consumption  ;  eminently  desira- 
ble, 346.— Stamps,  347.— Licenses  or  special  taxes,  348. 

CHAPTER  X. — National  Taxation  (continued). — Income  tax  ;  only  per- 
fectly just  principle ;  established  in  Great  Britain  ;  in  United  States, 
349. — Should  be  no  exemptions  as  to  persons  or  amount;  objections 
answered,  350. — Deferred  income,  to  be  estimated,  352.— Operation  of 
the  income  tax  as  between  capital  and  labor,  352. —  Taxation  upcn  ex- 
ports, effects  of,  353. —  Taxation  upon  cotton,,  when  expedient,  354. 

CHAPTER  XL — State  Taxation,  generally  direct,  355. —  Poll-tax  payerd 
placed  in  a  false  position,  350. — The  income-tax  principle  would  re- 
move this,  357- — Illustrations,  358. — Taxation  upon  credits,  360. — Illus- 
trated, 361. —  Ought  government  bonds  to  be  exempted  from  taxation?  363. 
— Loss  of  valuation  for  taxation,  365. — Conversion  of  the  national  debt 
into  capital.  How?  365. — Practicable,  366. — Beneficial  results,  367. 

CHAPTER  XII. — Foreign  Indebtedness. — Its  economy,  368. — Different 
form,  368. —  The  exportation  of  stocks,  369. — Fallacies  respecting  foreign 
indebtedness,  370. — fallacies  concerning  national  indebtedness,  372. 

CHAPTER  XIII. — Rise  and  Growth  of  the  Modern  Financial  Syntem,  377. 
— William  III.  of  England  author  of  modern  system,  378. — Establish- 
ment of  a  revenue  system,  379. — The  triad,  funding,  banking,  and  indi- 
rect taxation,  380. — Diagram  of  the  British  national  debt,  382. — Fruit 
of  this  policy;  extension  of  war  system  ;  increasing  indebtedness  all 
over  the  civilized  world;  impoverishment  of  the  masses;  such  a  debt 
throws  taxation  on  the  productive  classes,  384. 

CHAPTER  XIV. —  On  the  Laics  of  Inheritance  and  Bequest. — To  whom  does 
the  world  belong,  the  living  or  the  dead  1  384. — The  world  belongs  to 
the  living,  385. — Wealth  tends  to  pass  out  of  the  hands  of  a  family  or 
class,  386. — This  liability  of  the  rich  is  the  property  of  the  poor,  387. 
— The  laws  of  entail  and  primogeniture  mischievous  and  unjust,  388. 

BOOK  V.— CONSUMPTION. 

CHAPTER  I. — Divisions  of  the  Subject. — Consumption  the  use  of  wealth,  391. 
— Illustrated,  392. — Consumption  divided  as  mistaken,  luxurious,  and 
public  Consumption. — Mistaken  consumption,  393. — Capital  applied 
for  reproduction  without  result;  frequent  failures  of  industrial  enter- 
prises, 393. — Causes,  394. — Luxurious  Consumption. — What  is  luxury  1 
395. — General  formula,  395. — Do  luxuries  directly  encourage  industry  ? 
Illustration,  397. — Do  they  indirectly  encourage  industry?  398. 

CHAPTER  II. —  On  the  Degree  of  Luxurious  Consumption,  400. — Luxuries 
not  confined  to  the  rich;  an  extent  of  necessary  wages,  400. — Relative 
consumption  in  luxury  by  different  classes  in  Great  Britain  ;  historical 


XVI  TABLE    OF    CONTENTS. 

examples  of  luxury,  402. — The  causes  of  luxurious  consumption,  402. 
— Of  learning  and  art;  have  value;  their  price  varies,  404. — Effect  of 
such  consumption,  4&ff. — Sumptuary  laws  ;  supported  by  urgent  reasons, 
405. — Found  impracticable,  406. — Laws  in  the  interest  of  morality 
should  be  sustained,  407. — Economical  reason  for  government,  408. — 
Right  to  participate  in  consumption  ;  share?  408. — Government  should 
take  nothing  from  individual  enterprise,  409. — Government  should  do 
nothing  for  display,  410. — Expense  of  government  varies  with  circum- 
stances and  character,  410. — Expenditures  of  European  nations;  of 
United  States,  410. 

CHAPTER  III. —  Charity  and  Poor-Laws. — Not  very  important  in  United 
States,  411. — What  classes  entitled  to  charity?  all  who  require  it,  412. 
— Who  should  administer  charity,  412. — By  what  branches  of  the  gov- 
ernment ;  to  what  extent,  414. — To  what  extent  poor-laws  may  be  effect- 
ive, 414. — In  what  spirit  charity  should  be  dispensed,  416. 

CHAPTER  IV.—  The  Finance  of  War,  417.— Fallacy  that  more  money  is 
wanted  in  time  of  war  than  in  peace;  evil  effects  of  this,  417. — "  Rais- 
ing money"  no  more  necessary  in  time  of  war  than  peace,  418. — Except 
for  obtaining  foreign  assistance,  418. — Economy  of  the  war  system, 
419. — War  the  greatest  fact  in  public  consumption;  not  accidental; 
consisting  of  (1)  a  permanent  military  and  naval  force;  (2)  constant 
preparations;  (3)  large  national  indebtedness,  422. — Statistics  of 
European  armies,  423. — Is  war  a  moral  necessity  ?  424. 

CHAPTER  V. — Economy  of  Public  Education. — Economic  results  of  edu- 
cation, 427. — Prevents  pauperism  and  crime;  creates  higher  economical 
condition,  428. — Secures  more  uniform  distribution,  429. 

CHAPTER  VI. — Population. — Reference  to  the  theory  of  Malthus,  his 
two  postulates,  431. — Three  fallacies:  (1)  as  to  subsistence;  (2)  as  to 
propagation,  431. — (3)  The  supposed  necessary  relation  of  distress  to 
the.*e  postulates,  433. — Reference  to  English  pauperism,  433. — Causes 
that  limit  population,  433. — Self-restraint  and  social  influences,  434. — 
Differences  in  the  increase  of  the  native  and  foreign  population;  how 
accounted  for,  435. — (2)  Engage  in  more  healthy  employments;  (3) 
but,  principally,  are  far  less  influenced  by  prudential  considerations; 
American  and  foreign  marriages  in  Massachusetts,  438. — Reflections 
upon  the  facts  given,  438. 

CHAPTER  VII. — Immigration. — Its  large  extent,  439. — Statistics  of  cen- 
sus of  1870. — Effect  on  wages,  440. — Effect  on  the  condition  of  the 
native  laborer,  442. — Chinese  immigration;  its  character;  reflections, 
442. 

CHAPTER  VIII. — Importance  of  a  right  consumption,  443. — Illustration 
of  a  right  and  wrong  use  of  wealth,  446. —  What  is  the  economic  good  f 
447. 


POLITICAL    ECONOMY, 


BOOK  I. 

ID  IE  IF  imsm?  HOISTS. 


CHAPTER  I. 

CHARACTER   OF    THE    SCIENCE. 

POLITICAL  ECONOMY  is  the  Science  of  Wealth,  and 
professes  to  teach  the  laws  by  which  the  production 
and  consumption  of  wealth  are  governed. 

The  term  "political  economy"  is  not  a  fortunate 
one,  since  it  leads  the  popular  mind  to  a  misappre- 
hension of  what  the  science  actually  teaches,  and 
confounds  it  with  politics,  or  the  science  of  govern- 
ment, from  which  it  is  distinct. 

The  relations  into  which  these  sciences  enter  are 
voluntary,  and  for  the  supposed  advantage  of  both, 
not  from  any  logical  necessity  to  complete  either. 
A  just  and  efficient  government  of  the  state  is  im- 
portant to  realize  the  largest  development  of  wealth, 
but  only  as  a  condition  under  which  the  laws  of 
wealth,  already  complete  and  harmonious,  may  have 
their  own  proper  sway. 

Government  cannot  furnish  a  new  power  in  man, 
or  a  new  agency  in  nature.  It  can,  to  a  certain  ex- 

2*  (IT) 


18  DEFINITIONS. 

tent,  control  the  exercise  of  existing  power,  and  the 
use  of  existing  agencies ;  but  it  can  control  only  by 
limiting  them.  Nothing  is  added  through  legisla- 
tion. The  science  of  wealth  is  complete  in  its  own 
principles,  though  the  statesman  may  think  it  policy 
to  contravene  them  for  a  supposed  good.  Political 
economy  is,  then,  silent  before  the  law. 

Political  economy  teaches  the  relation  of  man  to 
those  objects  of  his  desire  which  he  can  obtain  only 
by  his  efforts.  lie  has  wants,  he  needs  food,  cloth- 
ing, and  shelter;  he  wishes  many  things  not  vital 
to  him.  Together,  these  constitute  his  wants,  in 
the  view  of  political  economy.  This  is  the  first  fact 
of  the  science.  It  is  the  foundation  of  all.  These 
wants  can  only  be  satisfied  by  efforts.  This  is  the 
second  fact.  By  it,  man  builds  on  the  foundation  laid 
in  his  wants.  The  objects  or  satisfactions  obtained 
by  these  efforts  are  collectively  called  wealth,  or 
those  things  which  contribute  to  the  welfare  of  man. 
This  is  the  third  fact  to  be  noticed.  The  circle  of 
political  economy  is  here  completed.  It  may  here- 
after appear  that  there  is  a  perpetual  progress,  an 
unceasing  self- multiplication  ;  that  each  satisfaction 
creates  a  new  want,  which  in  turn  seeks  its  object 
through  an  effort. 

Let  us  make  a  formal  statement  of  what  we  have 
obtained : 

WANTS,      EFFORTS,    SATISFACTIONS  ;  or, 
DESIRES,    LABOR,       WEALTH. 

The  wants  of  man,  in  which  are  all  the  springs  of 
wealth,  are  various,  and  change  their  place  and  form 
with  times  and  circumstances.  But  they  arise  from 


CHARACTER    OF   THE    SCIENCE.  19 

his  nature.  They  are  a  certain  and  constantly- 
operating  force.  They  commence  with  man's  ex- 
istence, and  terminate  only  with  his  life ;  and,  when 
all  the  desires  of  the  individual  are  satisfied  in  the 
grave,  and  his  labor  paralyzed,  the  wealth  he  lays 
down  in  death  becomes  the  possession  of  other  men, 
with  full  strength  and  fresh  desires ;  and  so  the  cre- 
ation of  wealth  goes  on  in  ever-increasing  circles, 
expanded  by  the  central  force, — the  wants  of  man. 

While  the  one  element  of  wants  or  desires  is 
secured  in  the  constitution  of  man's  being,  the  other 
element — viz.,  the  relation  of  effort  or  labor  to  them 
— is  fixed  in  the  constancy  of  nature,  and  the  per- 
manence we  attribute  to  the  created  world,  —  a 
foundation  sure  enough  to  build  upon. 

If,  on  the  one  hand,  man's  being  were  so  consti- 
tuted that  his  wants  should  cease,  or  be  intermitted 
without  any  reason  at  the  time,  and  without  any 
assurance  of  return,  or  prove  too  weak  to  move  the 
activities  towards  their  satisfaction ;  or,  on  the  other, 
nature  were  so  disposed  that  labor  had  no  guaranty 
of  reward,  resulting  indifferently  in  good  to  the 
laborer,  or  in  nothingness,  or  in  positive  injury  to 
him  who  performs  it, — we  could  have  no  science  of 
political  economy. 

•  But,  as  man's  being  and  nature's  laws  are  found 
in  experience,  political  economy  is  to  be  regarded 
as  a  positive  science.  Nothing  in  its  fundamental 
principles  is  hypothetical  or  problematic.  None  of 
its  methods  are  whimsical  or  accidental.  Each 
thing  is  susceptible  of  clear  demonstration.  All  its 
parts  are  calculable. 

In  his  efforts  to  supply  his  wants,  we  have  said, 


20  DEFINITIONS. 

man  avails  himself  of  the  powers  of  nature,  the  fer- 
tility of  the  earth,  the  stimulating  quality  of  the 
sun's  rays,  the  agencies  of  wind,  water,  and  steam ; 
all  the  dynamical  forces  and  mechanical  supports  at 
his  hand.  He  must,  therefore,  recognize  these,  and 
know  the  laws  by  which  they  are  governed.  But 
such  inquiries  do  not  come  within  the  field  of  the 
political  economist.  He  takes  them  from  the  hands 
of  the  physical  philosopher,  furnished  to  his  own 
use. 

Let  us  say,  then,  that  human  nature  in  its  wants, 
the  physical  laws  which  supply  them,  and  the  sta- 
tistics of  human  industry  in  all  its  manifestations, 
are  the  material  of  our  science. 

Political  economy  is  a  science  whose  laws  may  be 
disturbed  in  their  operation,  or  made  perplexing  to 
observation,  by  the  legislation  of  the  state.  Practi- 
cally, this  is  the  great  disturbing  force  which  politi- 
cal economy  has  encountered  in  all  the  past.  Wealth 
is  the  constant  subject  of  legislation  often  in  direct 
antagonism  to  its  own  laws. 

The  express  purpose  of  much  legislation  has  been 
to  reform  human  morals  by  an  external  pressure  on 
man's  desires,  or,  at  least,  to  reform  human  manners 
by  denying  all  gratification  of  such  desires;  and 
this,  not  in  the  interest  of  religion,  or  for  the  safety 
of  the  state,  but  in  matters  of  dress  and  equipage. 
Hence  the  laws  of  political  economy  are  not  only 
contravened  by  direct  legislation,  but  are  obstructed 
or  perverted  in  many  ways  by  false  social  and  politi 
cal  opinions. 

It  will  be  easily  recognized  as  a  part  of  that  human 
nature  of  which  we  have  spoken,  that  the  promul- 


DEFINITION    OF    WEALTH.  21 

gation  of  principles  whose  legitimate  operation 
threatens  the  overthrow  of  long-established  abuses, 
or  which  interfere  with  existing  customs,  should  ex- 
cite prejudice  and  opposition.  This  is  one  of  the 
chief  difficulties  the  science  has  had  to  encounter 
from  the  first.  Here  we  have  the  reason  why  it  has 
made  comparatively  little  progress,  and  is  the  only 
science  that  cannot  obtain  a  candid  and  impartial 
examination  from  the  mass  of  mankind. 


CHAPTER    II. 

DEFINITION   OF   WEALTH. 

HAVING  now  given  the  three  great  facts  on  which 
the  science  is  founded,  it  becomes  necessary  to  fix 
precisely  the  terms  to  be  used  in  the  further  devel- 
opment of  these  inquiries.  Political  economy  is 
unlike  all  other  sciences  in  this,  that  it  has  not  the 
option  of  making  or  choosing  its  own  terms.  From 
the  nature  of  the  case,  it  is  obliged  to  adopt  words 
in  common  use.  It  is  encumbered  with  all  the 
notions,  false  or  loose,  which  may  have  been  at- 
tached to  these.  It  has  to  speak  of  wealth;  of 
value  and  utility;  of  labor  and  capital;  of  pro- 
duction, exchange,  distribution,  and  consumption. 
These  are  common  phrases.  Each  has  a  variety  of 
meanings  in  popular  language  ;  yet,  when  used  in 
the  discussion  of  this  science,  it  must  have  one 
meaning  as  definite,  exclusive,  and  precise  as  the 


22  DEFINITIONS. 

terms  of  natural  history.  The  liability  to  confu- 
sion from  this  source  can  only  be  guarded  against 
by  being  kept  constantly  in  mind.  Until  the  proper 
definitions  become  instinctive,  so  that  they  arise 
freely  in  their  own  shapes  on  the  mention  of  such 
terms,  there  will  be  a  constant  slipping  back,  as  it 
were,  to  their  habitual  meanings  in  common  life. 
At  the  best,  the  laborious  reference  of  the  mind  to 
formal  definitions  will  tend  to  diminish  the  force  of 
all  representations  and  arguments  where  they  ap- 
pear. The  greatest  obstacle,  however,  encountered 
by  writers,  is  not  that  arising  through  popular 
prepossessions  in  regard  to  words,  but  it  is  their 
own  misapplication  of  language,  confounding  things 
essentially  distinct,  and  clothing  exact  principles  in 
expressions  so  vague  and  indeterminate  as  to  make 
science  impossible. 

We  have  said  that  political  economy  treats  of 
wealth ;  but  what  is  wealth  ?  In  popular  language, 
it  is  houses,  lands,  ships,  merchandise,  with  a  general 
"and  so  forth," — all  that  we  call  property.  In  sci- 
ence, the  term  "wealth"  includes  all  objects  of 
VALUE,  and  no  other. 

The  principle  is  cardinal.    The  science  turns  on  it. 

Political  economy  has  been  called  the  "  science  of 
values."  No  definition  could  be  more  strictly  accu- 
rate ;  but  we  shall  retain  that  already  given,  as  being 
more  popular,  and  as  nearer  to  the  customary  use  of 
the  words.  It  is,  then,  the  science  of  wealth,  under- 
standing that  wealth  consists  of  objects  of  value  only, 


DEFINITION    OF   VALUE.  23 


DEFINITION    OF   VALUE. 

What,  then,  is  value  ?  When  does  an  article  or 
commodity  possess  value  ? 

When  it  is  an  object  of  man's  desire,  and  can  be  ob- 
tained only  by  man's  efforts.  Anything  upon  which 
these  two  conditions  unite  will  have  value ;  that  is, 
a  power  in  exchange.  Value  is  the  exchange  power 
which  one  commodity  or  service  has  in  relation  to 
another. 

That  such  a  power  does  exist  is  not  a  matter  of 
dispute.  Its  influence  is  felt  and  acknowledged  in 
every  country,  civilized  or  savage.  This  it  is  which 
excites  to  industry,  creates  commerce,  and  supports 
government.  This  power  obeys  laws  as  certain  and 
immutable  as  those  which  appertain  to  any  of  the 
great  forces  of  nature.  Just  as  man  is  sure  to  feel 
wants,  to  put  forth  efforts,  to  realize  satisfactions, 
so  he  is  sure  to  be  found  exchanging  an  excess  for 
a  novelty,  a  home  product  for  that  which  comes 
from  abroad,  the  work  of  his  mind  for  the  work 
of  another's  body. 

Again  let  us  remark,  that  the  term  "  value"  always 
expresses  precisely  power  in  exchange,  and  no  other 
power  or  fact.  Desirableness  is  not  value.  Utility 
is  not  value.  No  objects  are  more  useful  and  desira- 
ble than  atmospheric  air,  the  light  of  day,  the  heat 
of  the  sun  ;  yet  these  have  no  value.  They  will  ex- 
change for  nothing,  because  any  one  may  have  all 
he  wishes  without  effort. 

An  object,  to  possess  value,  must  be  desired  by 
some  one  who  is  willing  to  render  a  service  or  equiv- 
alent in  order  to  obtain  it,  for  the  reason  that  he  can- 


24  DEFINITIONS. 

not  have  it  without.  It  is  what  a  man  gets,  what 
another  will  give,  that  determines  value. 

It  has  been  common  for  writers  to  speak  of  ex- 
changeable value,  intrinsic  value,  value  in  use,  etc.; 
but  all  these  terms  are  inappropriate.  The  adjectives 
are  superfluous.  To  speak  of  exchangeable  value  is  to 
speak  of  exchangeable  exchangeability.  The  term 
"  value,"  in  the  science  of  values,  always  implies 
power  in  exchange,  and  nothing  else. 

Of  all  the  writers  on  the  subject,  no  one  seems  to 
have  been  more  full  and  clear  in  the  definition  and 
illustration  of  value  than  M.  Bastiat,  in  his  "Har- 
monies of  Political  Economy :" 

"Theorists  have  set  out,  in  the  first  instance,  hy  confounding 
value  with  utility.  This  was  their  first  error  ;  and,  when  they  per- 
ceived the  consequences  of  it,  they  thought  to  obviate  the  difficulty 
by  imagining  a  difference  between  value  in  use  and  value  in  ex- 
change,—an  unwieldy  tautology,  which  had  the  fault  of  attaching 
the  same  word  '  value'  to  two  opposite  phenomena  "  (p.  161). 

"  The  theory  of  value,"  he  further  says,  "  is  to  political  economy 
what  numeration  is  to  arithmetic.  Value  is  the  RELATION  OF  TWO 
SKRVICES.  The  idea  of  value  entered  into  the  world  for  the  first 
time  when  a  man  said  to  his  brother,  '  Do  this  for  me,  and  I  will 
do  this  for  you;'  they  had  come  to  an  agreement:  then,  for  the 
first  time,  we  could  say  the  two  services  exchanged, — were  worth 
each  other.11 

k  The  case  of  the  blind  man  and  the  paralytic  is  given 
in  illustration.  The  blind  man  says,  "  I  have  limbs : 
you  have  eyes.  I  will  carry  you :  you  shall  be  my 
guide."  Each  receives  a  benefit;  their  services  are 
exchanged, — valued  by  each  other.  Here  we  have 
value  appearing,  not  in  material  wealth,  but  in  ser- 
vices; }Tet  the  principle  is  just  the  same  as  when  the 
hatter  says  to  the  bootmaker,  "  I  will  give  you  a  hat 
for  a  pair  of  boots,"  and  tbey  change  accordingly. 


DEFINITION    OF    VALUE.  25 

They  really  exchange  their  mutual  services,  which 
have  been  put  into  the  form  of  material  objects. 
Another  illustration  is  given  : 

"  I  wish  for  water  to  quench  my  thirst ;  I  go  two  miles  to  the 
spring  and  get  it.  My  neighbor  goes  on  the  same  errand.  I  say  to 
him,  '  Bring  me  water,  and  I  will  do  something  in  the  mean  time 
for  you;  I  will  teach  your  child  to  spell.'  Here  is  the  exchange 
of  two  services :  one  is  worth  the  other.  Presently,  I  say  to  my 
neighbor,  '  Instead  of  teaching  your  child  while  you  are  gone  for 
the  water,  I  will  pay  you  twopence  each  time.'  If  the  proposal  is 
accepted,  we  say  the  service  is  worth  twopence.  If  others  in  the 
neighborhood  employ  the  same  man  to  bring  water,  he  becomes  a 
water-merchant;  and  the  value  of  water  is  as  fully  recognized  as 
the  value  of  wheat.  The  water,  at  first  valueless,  is  now  an  article 
of  wealth.  It  has  not  changed  its  chemical  qualities,  but  services 
have  become  materializsd,  or  incorporated  with  it.  If  the  well,  in 
the  case  supposed,  were  brought  nearer  to  the  village,  the  value  of 
the  water  would  be  reduced,  because  less  labor  or  service  would  be 
required  to  obtain  it." 

Suppose  an  aqueduct  built  by  the  joint  labor  of  the  community. 
The  business  of  the  human  water-carrier  has  ceased  ;  but  not  the 
less  is  the  value  of  the  water,  delivered  at  the  door,  the  product  of 
labor.  The  labor  has  been  invested  with  a  permanent  form,  as 
pipes,  walls  of  masonry,  .gates,  etc.  Labor  has  been  accumulated 
for  the  purpose,  instead  of  using  the  hourly  labor  of  the  water-car- 
rier. The  industry  of  the  bricklayer  and  the  plumber  carries  water 
years  after  they  ceased  to  work  on  the  aqueduct. 

We  have  said  that  it  was  not  the  properties  of  the  water  that  gave 
value  ;  no  more  does  the  value  reside  in  the  mere  delivery  of  the 
same.  The  water-works  of  some  regions  furnish  them  water  on 
the  ground,  at  the  rate  of  a  million  and  a  half  square  feet  a  day  to 
each  square  league.  Yet  the  water  has  no  value  there ;  for  the 
agencies  employed  are  not  the  labor  of  man,  but  the  currents  of 
air, — Nature's  pipes  and  conduits. 

A  diamond,  as  M.  Bastiat  observes,  makes  a  great 
figure  in  works  upon  political  economy,  and  he  ad- 
duces an  illustration  which  may  be  summarized  as 
follows:  I  find  a  diamond.  I  am  put  in  possession 

3 


26  DEFINITIONS. 

of  great  value.  Has  it  cost  me  great  labor  ?  No,  yet 
some  one  will  give  me  $10,000  for  it.  Why  ?  Because 
he  knows  that  it  was  a  fortunate  accident  merely 
that  gave  me  the  diamond,  and  that  he  might  search 
for  years  without  finding  one  of  equal  value.  The 
purchaser  desiring  it  will  give  my  price  rather  than 
undertake  to  find  a  similar  one.  His  desire  and  the 
labor  it  might  occasion  him  determine  his  estimate 
of  the  gem,  not  the  labor  it  cost  me;  it  is  therefore 
true,  that  the  value  of  the  diamond  is  measured  by 
labor  equally  with  any  other  article. 

M.  Bastiat  insists  that  value  no  more  resides  in  the 
diamond  than  in  air  or  water. 

"It  resides  exclusively  in  the  services  which  we  suppose  to  be 
rendered  and  received  with  reference  to  these  things,  and  is  deter- 
mined by  the  free  bargaining  of  the  parties  who  make  the  exchange. 
The  pretended  value  of  commodities  is  only  the  value  of  services, 
real  or  imaginary,  received  and  rendered  in  connection  with  them. 
Value  does  not  reside  in  the  commodities  themselves,  and  is  no  more 
to  be  found  in  a  loaf  of  bread  than  in  a  diamond,  the  water,  or  the 
air.  No  part  of  the  remuneration  goes  to  Nature.  It  proceeds 
from  the  final  consumer  of  the  article,  and  is  distributed  exclusively 
among  men." 

Again  : 

11  In  order  that  a  service  should  possess  value  in  the  economical 
tense  of  the  word,  it  is  not  at  all  indispensable  that  it  should  be 
real,  conscientious,  and  useful  service.  It  is  sufficient  that  it  is  ac- 
cepted, and  paid  for  by  another  service.  It  depends  wholly  on  the 
j  uclgrnent  we  form  in  each  case  ;  and  this  is  the  reason  why  MORALS 
will  always  be  the  best  auxiliary  of  political  economy.  Economic 
science  would  be  impossible  if  we  admitted  as  values  only  values 
correctly  and  judiciously  appreciated." 

The  main  principle  in  the  theory  of  value  is  ex- 
pressed in  the  common  phrase,  "  A  thing  is  worth 
what  it  will  fetch," — that  is,  what  some  one  will  give 


VALUE    AND    UTILITY.  27 

for  it;  the  value  depending  on  the  will  of  the  pur- 
chaser, as  determined  by  his  judgment.  Value  is  the 
appreciation  of  services.  The  value  of  a  thing  is  the 
service  or  labor  which  it  will  command  in  exchange. 

If  there  is  no  resistance  to  the  possession  of  an 
article,  it  can  have  no  value.  Labor  alone  does  not 
always  create  value;  but  value  never  exists  in  an 
article,  unless  some  one  is  willing  to  give  labor,  in 
some  form  or  other,  in  exchange  for  it. 

The  ancients  thus  described  the  combinations  of 
exchange : 

Doutdes,  Commodity  for  commodity. 

Do  ut facias,  Commodity  for  service. 

Facio  ut  des,  Service  for  commodity. 

Facio  ut  facias.  Service  for  service. 

This  statement  exhausts  all  the  modifications  of 
the  principle. 


CHAPTEK  III. 

DISTINCTION    BETWEEN   VALUE  AND    UTILITY, 

WE  have  now  gone  over  all  the  ground  belong- 
ing to  the  theory  of  value :  but  we  cannot  leave  it 
without  dwelling  awhile  on  one  part  of  it;  without 
clearly  marking  the  boundary  which  separates  it  from 
the  domain  of  utility, — a  most  troublesome  and  in- 
trusive neighbor. 

There  is  between  utility  and  value  a  distinction  as 
real  as  between  weight  and  color. 

Suppose  a  farmer  in  Vermont  has  one  thousand 


28  DEFINITIONS. 

bushels  of  wheat ;  its  value  is  two  thousand  dollars. 
Its  utility  is,  that  it  will  make  forty  thousand  pounds 
of  bread. 

A  farmer  in  Illinois  has  one  thousand  bushels  of 
wheat,  equally  good ;  but  its  value  is  only  one  thou- 
sand dollars.  Its  utility  is  just  the  same.  It  will  make 
as  much  and  as  good  bread  as  the  wheat  of  Vermont. 
The  value,  then,  does  not  reside  in  the  utility,  but  in 
the  power  in  exchange.  The  wheat  of  Vermont  com- 
mands a  higher  price  than  that  of  Illinois,  because 
of  its  location  nearer  to  the  market.  Here  location 
means  labor, — that  is,  the  labor  required  to  overcome 
it.  This  will  be  still  more  apparent  if  we  suppose 
the  farmer  removed  a  thousand  miles  by  land  from 
any  market.  His  wheat  might  then  have  no  value; 
yet  its  natural,  inherent  utility  would  be  as  great  as 
ever. 

Take  another  illustration.  A  pound  of  small  nails 
or  tacks  formerly  had  the  value  of  twenty-five  cents, 
equal  to  one-fourth  of  a  day's  labor.  By  the  intro- 
duction of  machinery,  the  value  was  reduced  to  ten, 
then  to  five  cents,  or  the  twentieth  part  of  a  day's 
labor;  the  utility  remaining  all  the  time  as  at  first. 
The  value  of  many  articles,  especially  those  called 
manufactures,  are,  in  the  ordinary  progress  of  human 
effort,  constantly  diminishing,  though  never  annihi- 
lated. This  is  because  the  labor  or  service  to  be 
appreciated  in  such  values  is  constantly  lessening, 
though  it  can  never  wholly  disappear.  In  this  is  seen, 
not  only  the  certain  distinction  between  value  and 
utility,  but  one  of  the  most  beneficent  laws  of  the  sci- 
ence, which  may  be  stated  as  follows  :  Value  moves, 
diminished  constantly  by  the  substitution  of  the  gra- 


VALUE    AND    UTILITY.  29 

tuitous  agencies  of  Nature,  by  the  ingenuity  and  in- 
dustry of  man.  Utility  remains  fast  anchored  in  the 
wants  of  man  and  the  properties  of  matter. 

Political  economy  makes  no  inquiry  whether  the 
increase  of  material  objects  of  desire  is,  in  truth  and 
on  the  whole,  a  good.  It  assumes  this.  It  leaves 
to  others  the  discussion  whether  the  highest  in- 
terests of  society  are  attained  by  repelling  the  kind- 
ness of  Nature,  and  by  denying  the  instincts  of 
man.  This  kindness,  and  those  instincts,  political 
economy  accepts,  and  goes  forward  from  them.  It 
can  never  become  stoic.  It  is  not  a  science,  unless 
wealth  is  a  good. 

It  is  a  science;  and  it  has  no  doubt  that  the 
healthful,  honest  increase  of  physical  necessaries, 
comforts,  luxuries,  and  refinements,  with  the  oppor- 
tunities which  they  bring  for  mental  improvement 
and  moral  culture,  with  the  safeguards  they  place 
upon  social  order  and  personal  rights,  and  with 
the  manifold  strong  and  subtle  motives  which  they 
contribute  to  the  exertion  of  all  the  human  facul- 
ties, and  the  full,  friendly  intercourse  of  all  commu- 
nities and  peoples,  —  it  has  no  doubt  that  this  is 
desirable.  But  it  does  not  labor  to  prove  it  so.  It 
does  not  found  itself  on  any  supposed  refutation  of 
asceticism.  It  takes  without  inquiry  the  universal 
inclination  to  the  accumulation  of  wealth,  under  the 
restraints  of  mutual  duties  and  common  rights. 

"We  have  said  that  Nature  adds  value  to  nothing. 
Though  unceasingly  at  work  for  man,  she  receives 
no  compensation.  She  creates  utilities  beyond  com- 
putation, but  does  all  gratuitously.  Wind,  water, 
and  steam  are  most  efficiently  engaged  in  produc- 

3* 


30  DEFINITIONS. 

ing  commodities  necessary  to  the  welfare  of  man- 
kind ;  and  the  earth  is  unceasingly  active  to  bring 
forth  man's  food  in  its  many  forms.  Yet  all  is  done 
without  adding  to  the  wealth  of  the  world.  The 
forces  "work  for  nothing,"  and  hence  confer  no 
value.  The  power  of  the  wind,  for  example,  in  pro- 
pelling vessels,  adds  no  value  to  the  articles  trans- 
ported. But,  it  may  be  objected,  would  it  not  cost 
a  great  deal  more  to  transport  that  merchandise,  if 
it  had  to  be  done  by  human  hands  working  at  the 
oar?  Certainly;  and,  from  the  very  illustration,  it 
appears  that  the  power  of  the  wind  has  not  in- 
creased the  value,  but  rather  diminished  it.  It  has 
taken  the  slaves  from  the  bench,  and  does  the  mer- 
chant's rowing  for  him.  It  is  Nature's  work,  not 
man's  labor;  and  hence  value  goes  down,  while 
utility  stands  fast. 

Transportation  does,  indeed,  add  to  the  value,  but 
only  because  man's  vessels  and  man's  labor  are  em- 
ployed in  effecting  it.  All  the  natural  forces  that 
corne  in  take  off  from  value,  because  they  reduce 
the  amount  of  labor  required  in  production  and 
transportation.  Take  steam  for  an  example  in 
point.  The  services  of  this  great  agent  in  England 
are  probably  equal  to  the  muscular  effort  of  one 
hundred  millions  of  men;  but  the  whole  of  it  is 
gratuitous.  All  that  is  required  to  secure  these 
services  is  machinery  and  fuel,  whose  whole  value 
has  been  given  by  labor. 

If  we  look  to  the  fertility  of  the  land,  by  far  the 
greatest  of  all  the  natural  forces  engaged  in  produc- 
tion, we  shall  find  that  it  confers  no  value.  Is  it, 
asked,  "  Why,  then,  do  men  pay  for  the  use  of  it? 


DEFINITION    OF    LABOR.  31 

Why  buy  it  at  a  large  price?"  The  answer  at 
length  to  this  question  will  be  deferred  till  the  dis- 
cussion of  Rent;  but  it  will  be  sufficient  for  the 
purpose  of  the  present  argument  to  say,  that  it  is 
because  appropriated  or  owned  (whether  rightly  or 
wrongly)  by  individuals  who  can  make  a  profitable 
use  of  it  themselves. 


CHAPTER   IV. 

DEFINITION    OF  LABOR. 

WE  have  defined  value  at  great  length  and  with 
various  illustrations,  with  the  result,  to  our  minds, 
that  it  arises  from  the  union  of  desire  and  labor; 
but  we  have  not  defined  the  latter  term. 

What  is  labor  ? 

The  voluntary  efforts  of  human  beings  to  produce 
objects  of  desire. 

Labor  is  always  irksome.  This  is  law.  Men  do 
not  voluntarily  put  forth  their  exertions,  except  for 
a  reward.  By  the  beneficent  provision  of  Nature, 
habit  assists  our  activities;  great  desires  overcome 
the  sense  of  weariness  and  pain  ;  the  impetus  of  one 
movement  carries  us  on  into  the  next.  Toil  has  its 
compensations.  Its  fruit  is  pleasant  and  wholesome. 
But  not  the  less  is  it,  of  itself,  against  the  drift  of 
man's  natural  inclinations.  It  is  because  men  do 
not  voluntarily  put  forth  exertions,  except  for  a  re- 
ward, that  everything  which  costs  labor  will,  as  a 


32  DEFINITIONS. 

general  rule,  command  a  corresponding  amount  of 
service  or  labor.  Therefore  it  is  that  labor  is  the 
essential  measure  of  value.  Whatever  disturbing 
causes  there  may  be,  it  will,  on  the  whole  and  in 
the  long-run,  be  true  that  labor  commands  its 
equivalent  in  labor. 

In  this  definition,  we  have  spoken  of  voluntary 
efforts  alone,  because  involuntary  or  uncompensated 
efforts  are  not  to  be  classed  as  labor.  They  are 
merely  the  result  of  the  use  of  a  given  amount  of 
capital.  Slaves  are  owned,  like  horses  or  oxen;  and 
what  value  they  confer  is  from  their  employment  as 
so  much  capital.  This  distinction  is  not  unimpor- 
tant, because  we  shall  see  that  capital  is  controlled 
by  other  laws  than  those  which  govern  labor. 

Under  a  free-labor  system,  as  will  be  shown, 
there  are  two  proprietors  of  value, — the  laborer  and 
the  capitalist.  Under  a  slave  labor  system,  only  the 
latter  has  any  share  in  the  product. 

DEFINITION    OF   CAPITAL. 

Labor  enters  into  production,  or  the  creation  of 
values,  in  two  ways: 

First.  As  the  labor  of  the  present. 

Second.  As  the  labor  of  the  past. 

We  call  the  first  "labor"  simply;  the  second, 
"  capital,"  which  is  accumulated  labor.  In  their 
nature,  these  are  identical..  They  have  assumed 
different  forms,  have  acquired  independent  rights, 
and  each  obeys  certain  laws  peculiar  to  itself. 
These  two  forms  of  labor  may  be,  and  often  are, 
owned  by  different  persons.  One  man  has  present 


DEFINITION    OF    CAPITAL.  33 

labor  at  his  command.  This  must  be  his  own. 
Another  has  accumulated  labor.  This  may  be  his 
own,  or  that  of  others,  of  which  he  has  come  into 
possession. 

In  practice,  the  two  forms  of  labor  must  come 
together  and  help  each  other,  if  they  would  effect 
the  barest  subsistence  of  mankind.  As  society  goes 
forward  to  plenty,  comfort,  luxury,  civilization,  the 
union  and  mutuality  of  the  two  become  more  inti- 
mate and  vital. 

The  growth  of  capital,  and  the  steps  by  which  it 
comes  to  its  proper  position  in  the  creation  of  values, 
may  be  best  shown  by  a  familiar  illustration.  An 
able-bodied  workman  presents  himself  to  you, 
having  the  full  disposal  of  his  own  powers,  fully 
representing  the  labor  of  the  present,  and  that  only. 
We  will,  however,  compromise  so  far  with  his  neces- 
sities as  to  allow  him  to  be  clothed ;  though  each 
article  he  wears  has  come  from  the  labor  of  the  past, 
and,  in  this  supposition,  is  capital.  He  has  no  tools; 
and,  if  you  have  no  work  that  can  be  done  without 
tools,  you  must  deny  him  employment.  His  chances, 
then,  of  labor  are  hardly  as  one  to  a  hundred  with- 
out tools.  In  the  other  ninety -nine,  he  starves  for 
want  of  capital.  But,  by  chance,  you  find  work  re- 
quiring no  help  from  accumulated  labor.  You  set 
him  to  clearing  a  field  by  throwing  the  stones  into 
heaps.  He  has  secured  subsistence  for  the  day  with- 
out capital.  It  was  uncertain  whether  he  would 
obtain  it.  His  livelihood  to-morrow  is  still  more 
precarious.  But  no :  he  carries  away  his  earnings 
for  the  day.  He  chooses  to  lay  them  out  in  an  axe 
rather  than  on  any  object  of  comfort  or  pleasure. 


34  DEFINITIONS. 

He  has  practised  a  self-denial.  He  appears  the  next 
morning  with  his  axe.  He  has  enlarged  the  sphere 
of  his  activity  perhaps  fifty-fold.  He  has  now  fifty 
chances  of  employment.  Before  the  close  of  this 
period,  he  can,  by  thrift,  provide  for  his  immediate 
bodily  wants;  pay  for  his  clothes,  for  which  we  gave 
him  credit  more  in  charity  than  logic ;  and  become 
the  possessor  of  a  pick  and  shovel,  scythe  and  rake. 
He  is  now  a  full  farm-laborer,  able  to  do  any  part  of 
the  strictly  necessary  work  of  agriculture  with  such 
tools  as  he  has,  and  may  rightfully  expect  employ- 
ment every  day  of  the  year.  So  it  is,  in  the  grand 
field  of  the  world's  industry,  that  capital — the  accu- 
mulation of  labor — helps  the  labor  of  the  present, 
not  only  to  its  immediate  sustenance,  but  to  per- 
manent occupation,  to  increase,  and  to  the  highest 
economic  civilization. 


RELATION   OF    CAPITAL   AND    LABOR. 

But  this  union  creates  the  competing  interests  ot 
labor  and  capital,  since  they  are  generally  found  in 
different  hands.  An  interest  is,  in  scientific  mean- 
ing, a  share.  Each  has  now  only  a  share.  Before, 
each  had  the  whole  of  its  own  product,  but  a  most 
melancholy  whole.  They  are  competitors ;  for  those 
shares  are  not  determined  absolutely  in  the  nature 
of  the  union  to  which  they  have  consented.  It  is  by 
the  earnestness  and  persistency  of  competition  alone 
that  either  can  secure  its  remuneration,  or  maintain 
its  existence. 

But  they  are  not  antagonists.  All  their  effort, 
even  in  the  severest  assertion  of  their  individual 


RELATION    OF    CAPITAL    AND    LABOR.  35 

claims,  goes  to  the  increase  of  the  common  property, 
and  the  advancement  of  their  mutual  service.  An- 
tagonism tends  to  destroy.  Its  purpose  is,  so  far  as 
it  proceeds,  to  remove  one  or  the  other  of  the  par- 
ties. The  competition  of  labor  and  capital  never 
ceases;  but  it  respects  the  bond  of  union  in  which 
only  each  has  its  own  full  development. 

Here  we  see  the  folly  of  the  supposed  antagonism. 
They  are  partners,  and  should  divide  the  results  of 
industry  in  good  faith  and  good  feeling.  False  phi- 
losophy, or  unprincipled  politics,  may  alienate  their 
interests,  and  set  them  at  discord.  Capitalists  may 
encroach  on  labor.  Laborers  may,  in  their  madness, 
destroy  capital.  .  Such  is  the  work  of  ignorance  and 
evil  passions. 

However  far  such  a  strife  may  be  carried,  it  must 
result  in -mutual  injuries;  and  health  can  only  be 
restored  by  obtaining  the  recognition  of  the  full 
rights  and  obligations  of  each.  The  condition  of 
well-being  is  peace.  A  false  philosophy  has  set  the 
world  at  war  for  ages,  proclaiming  that  what  one 
nation  may  gain  another  must  lose.  Such  a  philos- 
ophy has  had  its  trial,  extending  over  centuries  of 
waste  and  terror;  and  is  now,  fortunately,  dishon- 
ored through  the  whole  civilized  world. 

Akin  to  it  is  the  belief  that  hatred  and  retaliation 
are  the  normal  relations  of  capital  and  labor,  and 
that  mutual  distrust  and  hurtfulness  are  inevitable 
in  all  the  developments  of  industry.  Such  a  be- 
lief blasphemes  the  harmonies  of  Providence, — 
is  sightless  before  the  glorious  order  of  man  and 
nature.  The  cruel,  shallow  selfishness  of  capital  has 
often  robbed  labor  bv  means  of  law.  Labor,  im- 


36  DEFINITIONS. 

• 

poverished,  ignorant,  degraded,  has  often  turned 
upon  its  tyrant,  and  laid  in  a  common  waste  church 
and  state,  letters  and  wealth. 

THE    GENERAL   DIVISIONS    OF   THE    SCIENCE. 

1st.  It  being  admitted  that  man  has  wants  which 
lie  can  satisfy  from  the  world  around  him,  and  which 
he  desires  to  satisfy  as  fully  and  easily  as  possible, 
we  are  first  led  to  inquire  in  what  manner  this  can 
be  done  most  effectively, — how  the  forces  at  his 
command  may  be  most  advantageously  employed ; 
in  other  words,  what  are  the  laws  which  govern  the 

PRODUCTION    OF   WEALTH. 

2d.  Since  men  have  different  capacities  and  tastes, 
— since  they  are  placed  in  a  variety  of  circumstances 
as  to  soil,  climate,  and  civilization, — their  products 
will  be  various;  and  yet,  since  all  men  desire  nearly 
the  same  objects,  an  interchange  of  their  respective 
commodities  will  become  a  necessity.  Hence  arises 
that  department  of  industry  called  EXCHANGE,  the 
laws  of  which  it  is  the  province  of  political  economy 
to  investigate. 

3d.  Almost  all  objects  which  men  desire  are  pro- 
duced by  the  joint  efforts  of  several  individuals. 
One  contributes  strength;  another,  skill ;  another, 
capital, — yet  the  product  must  be  distributed  among 
them  all,  and  in  just  proportions.  As  this  division, 
it  is  quite  clear,  should  not  be  left  to  the  caprice  of 
individuals,  but  be  determined  by  natural  laws,  it 
becomes  one  of  the  departments  of  inquiry  upon 
which  the  political  economist  must  enter.  It  is  here 
his  duty  to  ascertain  what  those  laws  are,  and  under 


GENERAL    DIVISIONS    OF   THE    SCIENCE.  37 

• 

what  circumstances  and  conditions  they  will  effect 
an  equitable  DISTRIBUTION  of  the  WEALTH  which  has 
been  produced. 

4th.  As  all  commodities  created  by  human  exer- 
tion are  designed  for  use,  and  as  such  use  implies 
consumption  more  or  less  rapid,  and  as  upon  this 
depends  the  power  and  disposition  for  reproduction, 
the  question  of  CONSUMPTION  has  a  scientific  place 
among  the  objects  of  our  inquiry,  and  will  be  found 
to  possess  a  practical  importance  second  only  to  that 
of  production. 

These  are  the  four  great  questions  which 'suggest 
the  general  divisions  of  our  subject;  viz.,  produc- 
tion, exchange,  distribution,  and  consumption  of 
wealth. 


BOOK    II. 


CIIAPTEE,    I. 

FORMS    OF    PRODUCTION. 

ALL  values  are  created  by  modifications  of  exist- 
ing matter.  Man  cannot  create  one  particle  ;  but  he 
can  modify  what  he  finds,  or  change  its  condition, 
in  three  ways;  viz.: 

By   TRANSMUTATION,    by    TRANSFORMATION,    by   TRANS- 
PORTATION. 

First,  by  transmutation. 

This  is  eminently  the  work  of  the  agriculturist, 
who,  availing  himself  of  the  chemical  agencies  of 
the  earth  and  air,  transmutes  seeds  into  vegetables, 
fruits,  and  grains;  and  these  again,  by  the  aid  of 
animal  organizations,  into  butter,  beef,  hides,  etc. 
This  is  the  most  extensive  branch  of  industry,  and 
employs  probably  four-fifths  of  the  human  race  from 
generation  to  generation.  It  is  the  base  of  the 
great  pyramid  of  production.  It  furnishes  the  ma- 
terial and  the  support  of  all  other  forms  of  labor; 
and  not  this  only,  but  it  renews  and  restores  their 
waste  with  an  unceasing  supply  of  fresh  bodily  and 
(38) 


FORMS    OF    PRODUCTION.  39 

mental  power.  The  air  of  trade  and  of  the  mJl 
heats  and  rises,  and  cold  currents  rush  in  from  the 
prairie  and  the  mountain.  The  foot  of  the  rustic 
is  ever  turned  to  the  marts  of  commerce,  and  the 
busy  gatherings  of  men. 

Just  as  agriculture  sends  to  the  markets  and  the 
mills  of  the  world  their  materials,  so  it  sends  them 
their  workmen.  Strength  and  even  life  go  fast  in 
the  eager  competitions  of  manufactures  and  trade. 
Cool  air,  fresh  blood,  flows  in  from  the  country  to 
supply  the  waste.  The  bare,  bleak  hills,  where 
Nature  grudges  every  morsel  of  food,  and  stabs 
cruelly  through  every  chink  in  the  wall,  every  rent 
in  the  clothes,  feed  the  busy  cities  with  men.  The 
streams  of  vigorous  life  run  off  from  them  to  refresh 
the  plains  below. 

Agriculture  has  no  need  to  receive  back,  in  any 
form,  her  contributions  to  the  other  occupations. 
The  power  to  give  without  exhaustion  lies  in  the 
liberal,  healthful  reproduction  of  man,  when  living  in 
intimate  relations  with  Nature.  Here,  after  all  its 
hurts,  humanity  comes  for  healing.  War  and  pesti- 
lence, the  fierce  contest  of  the  mart,  the  stifling 
atmosphere  of  the  mill,  may  waste  our  kind  in  quick 
or  lingering  deaths;  but  still,  by  the  side  of  the 
brooks,  men  will  be  born  to  hold  up  the  frame  of 
industry  and  social  order  when  their  supporters 
faint  and  fail. 

But  the  department  of  agriculture  is  not  confined 
to  the  popular  view  of  it.  When  grain  is  produced, 
the  seed  must  be  planted  in  prepared  ground,  the 
long  interval  of  growth  to  maturity  must  be  filled 
with  care  and  labor;  and,  at  last,  the  work  of 


40  PRODUCTION. 

harvesting  completes  the  round  of  duties  that  go  to 
the  production  of  the  grain.  But  there  are  great 
industries  in  the  department  of  agriculture,  where 
harvesting  alone  is  performed  by  man.  Nature  has 
done  all  the  rest.  Man's  part  is  to  find  and  to  take 
of  her  bounty.  Such  an  industry  is  mining, — 
whether  of  iron  or  coal,  whether  of  diamonds  un- 
derground in  Golconda,  or  sponge  under  water  in 
the  Archipelago.  Such  an  industry  is  the  fisheries, 
— whether  of  whales  off  Greenland,  of  cod  off  New- 
foundland, or  of  pearl-oyster  off  Ceylon. 

Man  modifies  matter  and  exchanges  its  condi- 
tion,— 

Secondly,  by  transformation. 

This  is  the  business  of  the  manufacturer  and  the 
mechanic.  These  create  values  by  changing  the 
forms  of  matter,  as  cotton  and  wool  into  cloth,  iron 
into  tools  and  implements.  This  is  the  second  great 
department  of  human  industry.  Its  ramifications 
extend  throughout  the  world,  yet  not  everywhere  of 
the  same  vigor  and  extent.  Since  manufactures,  as 
a  whole,  do  not  meet  wants  so  primitive  and  abso- 
lute as  does  agriculture,  they  are,  by  a  law  evident 
in  all  industry,  found  not  to  be  so  equally  diffused. 
Those  needs  which  are  peremptory  and  instant  will, 
from  that  reason,  tend  to  obtain  their  supply  from 
the  immediate  neighborhood  in  which  they  arise. 
The  nearer  objects  of  desire  approach  to  being  lux- 
uries, the  more  cosmopolitan  they  become. 

The  distribution  of  manufactures  is  governed  by 
a  variety  of  conditions,  among  which  may  be  briefly 
stated  the  following : 

1,  The  industrial  genius  of  a  people.     Without 


FORMS    OF    PRODUCTION.  41 

plunging  into  the  deep  questions  of  ethnical  differ- 
ences, or  compensations  in  the  whole  of  character,  it 
is  yet  evident  beyond  discussion,  that  the  active 
•powers  of  every  people  have  something  of  their  own 
which  they  do  not  fully  share  with  others.  Were 
all  the  nations  of  the  earth  possessed  of  mental, 
moral,  and  physical  qualities  which  could  be  posi- 
tively estimated  to  be,  in  the  sum  of  them,  equal,  it 
is  quite  certain  that  they  would  be  far  from  simi- 
lar: their  energies  would  develop  in  different  lines 
towards  different  objects.  Patience  and  a  kind  of 
business  faith  distinguish  some  peoples,  mark  their 
features,  and  are  impressed  distinctly  in  the  results 
of  industry.  Activity  and  daring  speculation  no  less 
characterize  others.  To  a  class  of  minds  thoroughly 
representative  of  more  than  one  nation,  mechanicat 
contrivance  gives  the  same  glow  of  pleasure  that 
rewards  the  painter  for  his  years  of  toil. 

2.  The  territorial  advantages  of  a  people,  which 
are  both  positive  and  negative  in  their  nature, — posi- 
tive, as  a  people  is  endowed  with  water-power,  and 
with  the  collocation  of  necessary  materials,  as  of  ore, 
coal,  and  lime  for  making  iron  ;  negative,  as  a  people 
is  not  attracted  to  other  branches  of  production  by 
superior  facilities.     It  is  estimated  that  Holland  has 
not  agricultural  capacities  to  supply  a  third  of  its 
population. 

3.  Great  accidents,  belonging  neither  to  the  essen- 
tial genius  of  the  people,  nor  its  territorial  endow- 
ments.    Such  are  the  transcendent  discoveries  in  the 
sciences  and  the  arts.     Such  are  wars  which  exhaust 
nations,  leaving  them  weak  for  generations.     Such 
are  persecutions,  like  that  which  scattered  over  the 


42  PRODUCTION. 

continent  six  hundred  thousand  Huguenots, — the 
cunning  artisans  of  France ;  like  that  which  wrought 
devastation  still  greater  in  the  "  reconciled''  prov- 
inces of  Spain.* 

But  man  modifies  matter  or  changes  its  condi- 
tion,— 

Thirdly,  by  transportation. 

The  merchant  does  not  primarily  create  value  in 
objects,  but  enhances  that  already  existing  by  trans- 
porting such  objects  from  one  locality  to  another. 

The  characteristic  illustration  is  of  the  most  fa- 
miliar kind.  Cotton  bought  at  New  Orleans,  in 
1860,  for  twelve  cents  per  pound,  transported  to 
Liverpool,  would  have  sold,  say,  for  fifteen  cents. 
By  his  capital  and  skill,  the  merchant  has  added 
twenty -five  per  cent,  to  the  value  or  exchangeability 
of  the  cotton.  He  has  increased  the  wealth  of  the 
world  so  much.  He,  therefore,  has  produced  value. 
Such  transactions  are  useful  alike  to  the  producer 
and  to  the  consumer  of  the  articles  transported. 

In  so  far  as  the  transportation  of  products  gives 
them  value,  it  belongs  to  the  present  general  division 
of  the  subject ;  but  its  methods  and  agencies  are  so 
unlike  those  of  the  other  forms  of  production,  it  is 
governed  by  laws  so  peculiar  arid  complete  in  them- 
selves, it  composes  so  large  and  easily  separate  a 
department  of  inquiry,  that  it  is,  for  the  discussion 
of  its  principles,  placed  as  a  general  division  of  the 
science  under  the  title  of  "Exchange."  To  com- 

*"  Our  manufactures  were  the  growth  of  the  persecutions  in  the 
Low  Countries." — EDMUND  BURKE,  in  his  speech  to  the  electors 
of  Bristol. 


FORMS    OF    PRODUCTION.  43 

pletc  the  sphere  of  production,  we  recognize  here 
the  share  it  has  in  creating  values;  but  the  means 
by  which  this  is  effected,  and  the  impressive  phe- 
nomena exhibited  in  the  operation  of  this  agency 
throughout  the  entire  world,  are  set  apart  for  special 
consideration. 

We  have  thus  gone  through  the  three  forms  in 
which  man  modifies  matter  to  create  values, — trans- 
mutation, transformation,  and  transportation.  The 
inquiry  will  at  once  occur,  whether  these  exhaust  all 
possible  efforts  in  production.  The  answer  may 
come  out  more  clearly  if  we  proceed  by  an  illustra- 
tion. 

The  chemist  has  been  ranked,  by  some  scientific 
writers,  among  the  agricultural  class,  because  he  so 
aids  and  directs  the.  processes  of  Nature  as  to  pro- 
duce objects  of  value  by  changing  the  elementary 
powers  of  acids  and  alkalies  into  salts,  etc.  That  is, 
he  transmutes.  It  seems  more  accurate  to  say,  that 
he  belongs  among  producers  just  so  far  as  he  assists 
in  any  one  of  the  three  forms  defined. 

The  division  we  have  made  of  production  into 
three  modes  seems  to  afford  the  best  view  attainable 
of  the  subject.  It  will  be  observed,  that  these  are 
not  distinct  forms  in  which  labor  appears,  as  in  so 
many  moulds;  but  that  they  result  from  an  arbi- 
trary classification  of  individual  efforts,  according  to 
the  best  reason  of  the  case.  The  whole  authority 
of  such  a  classification  consists  in  this, — that  it  seems 
more  complete  and  definite  than  any  other  which  is 
offered.  All  these  forms  of  productive  effort  may 
be  united  in  a  single  commodity;  and,  indeed,  there 
are  but  few  products  which  do  not  contain  them  all. 


•44  PRODUCTION. 


CONDITIONS    OF    THE    HIGHEST    PRODUCTION. 

If  labor,  through  some  form,  produces  all  wealth, 
we  are  led  to  inquire  into  the  circumstances  and 
conditions  that  increase  or  diminish  the  efficiency  of 
this  great  force.  That  there  are  mighty  variations 
as  it  appears  in  different  countries,  and  even  in  adja- 
cent communities,  is  so  manifest  as  hardly  to  require 
mention  or  illustration. 

If  the  wealth  of  any  nation  cannot  be  determined 
merely  by  the  proportion  of  its  population  to  that  of 
the  world,  or  of  its  territory  to  the  general  mass  of 
the  globe, — as  it  clearly  cannot, — the  question, 
Why  ?  introduces  us  to  the  discussion  of  all  those 
influences  which  directly  or  indirectly,  immediately 
or  remotely,  make  one  to  differ  from  another.  These 
may  be  classed  as  follows : 

DIVISION  OF  LABOR. 
CO-OPERATION  OF  CAPITAL. 
ECONOMIC  CULTURE. 


CHAPTER  II. 

DIVISION    OF    LABOR. 

IN  some  countries,  a  man  wishing  fora  chair  goes 
into  the  forest,  fells  a  tree,  carries  the  timber  to  his 
workshop,  forms  the  parts,  and  puts  them  together 
into  a  chair.  It  is  a  rude  and  imperfect  article,  but 
it  has  cost  him  the  labor  of  two  days. 

In   other  communities,  we  find  a  chair,  equally 


DIVISION    OF    LABOR.  45 

serviceable  and  far  more  elegant,  produced  by  the 
labor  of  half  a  day.  Here  one  man  cuts  the  timber, 
another  transports  to  the  mill,  another  saws  it  into 
-suitable  dimensions,  another  forms  the  legs,  another 
the  seat,  another  the  back,  another  puts  the  parts 
together,  while  still  another  paints  it.  A  great  many 
chairs  are  produced  by  the  combined  labor  of  many 
individuals;  and  the  result  is,  that  one  chair  has  the 
value  of  only  half  a  day's  labor.  Three-fourths  of 
the  labor  employed  in  the  making  of  chairs  is,  then, 
liberated,  to  rest  in  idleness,  or  to  apply  itself  to  fur- 
ther production  with  still  increasing  results,  as  the 
desires  which  control  efforts  shall  determine.  We 
cannot  be  ignorant,  that,  in  some  communities, 
labor,  when  set  free,  does  waste  itself  in  idleness  and 
frolic.  But  this  is  true  chiefly  of  those  in  which 
leisure  is  bestowed,  not  by  man's  contrivance,  but 
by  the  generosity  of  Nature. 

But  it  may  safely  be  assumed,  that  such  an  indus- 
trial genius  in  a  people,  as  seeks  to  lessen  present 
labor  by  the  distribution  of  its  several  offices,  will 
find  fresh  objects  of  desire.  The  very  thoughtful- 
ness  and  care,  the  social  confidence,  and  mutuality 
of  service,  which  are  required  to  effect  a  division 
of  labor,  insure  such  a  susceptibility  to  new  indus- 
trial wants  as  shall  necessitate  the  employment  of 
all  the  labor  so  relieved. 

The  full  discussion  and  illustration  of  this  princi- 
ple, which  governs  the  use  of  labor  saved,  belongs 
to  the  third  inquiry;  viz.,  that  of  "Economic  Cul- 
ture." We  'have  here,  strictly,  to  show  only  how 
labor  is  saved  by  the  division  of  employments.  This 
forms  the  great  fact  of  modern  industrial  civilization. 


46  PRODUCTION. 

We  shall  find  it  the  most  important  condition  of 
production,  multiplying  all  its  powers  faster  than  the 
soil  multiplies  the  seed.  Here  is  more  of  the  expla- 
nation of  wealth  than  can  be  found  in  all  other  in- 
quiries. This  force  is  being  rapidly  introduced  into 
every  department  of  industry,  and  will  finally  become 
as  general  as  the  nature  of  the  different  employments 
will  admit.  We  do  not  find  that  it  has  yet  reached 
its  ultimate  limit  in  any  sphere  of  human  activity. 

"What  is  the  significance  of  division  of  labor,  as 
expressed  in  the  fewest  words  ?  It  is,  that  each 
workman  confine  himself  to  a  single  operation.  In 
this  way  all  great  and  successful  manufactures  are 
carried  on. 


CHAPTER   III. 

THE   ADVANTAGES    OF   DIVISION    OF   LABOR. 

1st.  It  gives  increased  dexterity.  All  common 
observation  testifies  how  rapid  and  accurate  our  mo- 
tions become,  when  confined  to  a  single  operation. 
The  powers  of  his  body  are  in  perfect  discipline. 
They  have  learned  their  parts,  and  obey  instanta- 
neously and  harmoniously.  The  more  simple  the 
movement  assigned,  the  greater  will  be  the  effi- 
ciency of  performance. 

2d.  It  allows  the  workman  a  better  knowledge  of 
his  business.  This  is  to  the  mental  powers  what  the 
first  is  to  the  bodily.  It  gives  intellectual  dexterity. 
The  man  has  a  mastery  of  his  special  operation.  He 


- 


ADVANTAGES    OF    DIVISION    OF    LABOR.  47 

knows  more  about  it  than  if  be  bad  two  things  to 
think  of  and  care  for.  He  becomes  shrewd  in  every 
motion.  He  adapts  his  labor  to  the  material ;  he 
discriminates  between  the  qualities  of  that  material. 
He  meets  the  little  difficulties  of  his  work  with  more 
skill  and  less  waste. 

3d.  It  saves  time,  in  passing  from  one  work  to 
another.  In  the  making  of  a  chair  after  the  primi- 
tive fashion  we  have  supposed,  a  great  deal  of  time 
will  be  spent  in  passing  from  one  part  of  it  to 
another,  from  the  place  of  one  operation  to  that  of 
another.  It  is  not  a  loss  alone  of  the  time  physi- 
cally necessary  in  effecting  the  transitidn,  but  each 
operation  will  leave  something  to  harass  the  mind 
in  the  other.  During  the  first  part,  the  attention 
will  be  distracted  by  what  has  just  been  left.  Dur- 
ing the  last  part,  the  attention  will  run  on,  antici- 
pating what  is  to  come.  The  shadow  is  cast  both 
ways  upon  the  mind. 

4th.  It  facilitates  the  invention  of  tools  and  ma- 
chines. If  a  treasure  of  gold  or  iron  or  oil  is  hid 
under  the  ground,  the  discoverer  is  more  apt,  other 
things  being  equal,  to  be  the  man  who  owns  the 
land,  and  resides  and  works  on  it,  than  a  casual  vis- 
itor. So,  if  there  is  possibility  of  adapting  foreign 
forces  to  the  production  of  values,  the  inventor  will, 
on  the  same  condition,  more  probably  be  the  work- 
man than  any  one  else;  he  is  constantly  engaged 
upon  the  operation ;  he  desires,  of  course,  to  sim- 
plify it,  since  it  is  a  law  of  mind  to  do  as  little  work 
ft  s  possible  for  a  certain  result;  he  knows  the  wants 
of  the  subject;  he  knows  all  the  capabilities  of  his 
material;  he  thinks  about  it  all  the  time,  and  can 


48  PRODUCTION. 

try  an  experiment  without  changing  his  place. 
Therefore,  by  the  logic  of  Nature,  he  invents. 

5th.  It  secures  the  better  adaptation  of  physical 
arid  mental  abilities.  No  consideration  is  more  vital 
than  this.  The  work  which  man  finds  to  do,  the 
efforts  he  has  to  make  for  satisfactions,  however 
high  his  wants  may  rise,  will  be  of  the  most  various 
character,  and  require  the  most  diverse  powers. 
There  are  operations  which  demand  great  strength; 
others,  rapid  motion;  others,  good  judgment;  others, 
a  mechanical  eye;  others,  fidelity  and  trust;  others, 
high  intelligence  and  education.  Such  qualities, 
even  those  purely  physical,  are  not  found  equally  in 
all;  nay,  by  the  compensations  of  Nature,  they  are 
generally,  though  not  necessarily,  found  apart. 
Therefore,  unless  work  were  divided  according  to 
the  several  qualities  required,  a  deficiency  in  one 
would  neutralize  all  the  others,  and  exclude  the 
workman  from  employment,  or  compel  him  to  work 
at  great  disadvantage. 

The  extensive  applications  of  this  principle  will 
occur  to  every  mind.  Each  man  finds  the  sphere  of 
his  highest  usefulness  as  he  is  endowed  by  Nature. 
Those  who  are  gifted  with  education  and  ingenuity 
devote  all  their  time  and  energy  to  duties  appro- 
priate to  such  powers.  They  thus  confer  on  others 
the  advantage  of  their  own  gifts,  and  are  themselves 
spared  from  drudgery  and  uncongenial  labor.  The 
poorest  in  qualifications,  also,  find  a  place  in  which 
they  can  produce  within  the  great  partnership  of 
society.  Women  are  enabled  to  undertake  business 
of  the  most  delicate  and  important  character,  to 
which  their  strength  is  sufficient ;  while  children  of 


ADVANTAGES    OF    DIVISION    OF    LABOR.  49 

all  ages  take  parts  that  would  otherwise  occupy  mc.n. 
The  power  saved  or  gained,  by  such  an  adaptation  of 
talents  to  special  branches  of  industry,  is  incalculable. 

And  not  merely  do  all  find  in  a  proper  division  of 
labor  their  full  occupation  and  fair  reward,  but  the 
work  of  each  is  just  as  truly  productive  as  that  of 
any  other.  The  boy  who  watches  crows  does  as 
much  at  that  business  as  the  bravest  and  greatest  of 
earth.  He  takes  the  place  of  some  one  who  goes 
away  to  do  a  larger  work. 

6th.  It  increases  the  power  of  capital  in  produc- 
tion, tends  to  concentrate  manufactures  in  large 
establishments,  and  reduce  profits. 

Supposing  all  men  equally  capable  of  carrying  on 
independent  business,  which  is  not  the  case, — if  we 
compare  seven  men  each  with  a  capital  of  $1,000  and 
one  man  with  a  capital  of  $7,000,  we  shall  find  the 
economical  advantage  greatly  in  favor  of  the  latter. 
The  former  must  do  business  on  a  small  scale,  and 
purchase  materials  in  small  quantities.  The  latter 
can  buy  at  wholesale  prices,  can  afford  to  go  often  to 
market,  and  to  keep  himself  well  informed,  and  will 
sell  as  well  as  buy  to  great  advantage. 

In  addition  to  this,  the  large  manufacturer  can 
afford  to  work  for  a  smaller  rate  of  profit. 

A  single  hatter,  for  example,  who  makes  only 
$2,000  worth  of  hats,  must  secure  25  per  cent,  in 
order  to  have  a  net  income  of  $500 ;  while  the  man 
who  can  make  $20,000  worth  of  hats  will,  if  he  real- 
ize only  12J  per  cent.,  have  an  income  of  $2,500.* 

*  The  shoe  trade  affords  a  conspicuous  illustration  in  point.  At 
the  beginning  of  the  present  century  it  was  almost  wholly  carried 

5 


50  PRODUCTION. 

We  see  from  these  illustrations  why  the  great 
establishments  drive  smaller  ones  out  of  the  market. 
A  tendency  to  a  reduction  of  profits  is  a  natural  con- 
sequence of  this.  Therefore,  other  things  being 
equal,  it  is  desirable  that  manufacturing  establish- 
ments should  be  sufficiently  large  to  secure  all  the 
advantages  of  concentrated  capital,  and  effect  the 
complete  division  of  labor. 

7th.  It  shortens  apprenticeship. 

Every  art,  trade,  or  profession  must  be  preceded 
by  an  apprenticeship,  more  or  less  extended,  accord- 
ing to  what  is  necessary  to  be  learned.  A  trade 
which,  in  order  to  be  perfectly  understood  in  all  its 
parts,  requires  an  apprenticeship  of  seven  years, — 
if  it  be  subdivided  into  seven  different  operations, 
may,  it  is  evident,  be  obtained  with  as  great  a  degree 
of  perfection  by  an  average,  in  each  branch,  of  one 
year's  service.  Some  of  the  parts  may  require  more 
than  one  year,  others  less. 

Now,  we  find  this  to  be  practically  true ;  and  the 
result  is  a  great  saving  of  time,  and  time  is  money. 

For  example : 

Seven  men  serve  seven  years  each  to  learn  to  make  hats, 

— in  all,  a  service  of 49  years 

Seven  men  serve  one  year  each  to  learn  to  make  a  seventh 

of  a  hat,  equal  to 7  " 

Saving  of 42  years 

on  by  individual  mechanics  working  in  small  shops  and  requiring 
a  "  kit"  costing  but  a  few  shillings.  Now  vast  factories  are  erected, 
steam  or  other  power  applied,  a  large  variety  of  labor-saving  ma- 
chinery introduced,  and  the  business  is  carried  upon  a  scale  of  sur- 
prising magnitude  ;  one  establishment  in  Massachusetts  producing 
6,000  pairs  of  boots  and  shoes  daily.  Of  course  a  very  small  per- 
centage of  profits  must  give  a  great  annual  income. 


ADVANTAGES    OF    DIVISION    OF    LABOR.  51 

in  the  mechanical  education  of  every  seven  men  employed  in  this 
manner. 

Apply  this  principle  to  the  manufacturers  of  Massachusetts, 
which  has  at  least  75,000  skilled  workmen,  and  suppose  the  appren- 
ticeship to  be  seven  years,  we  have — 

75,000  at  7  years  each 525,000  years 

75,000  at  1  year  each 75,000     " 

Saving  of 450,000  years 

in  one  generation  of  skilled  workmen. 

If  we  suppose  these  years,  saved  from  apprentice- 
ship, to  have  an  average  value  of  $200,  we  have  a 
saving  of  $90,000,000  for  each  generation  of  skilled 
workmen  in  Massachusetts. 

The  principle,  under  which  this  saving  of  time  is 
made,  cannot  be  disputed. 

8th.  It  gives  opportunity  for  greater  social  devel- 
opment, and  increases  the  social  power  of  labor. 

This  is  immediately  of  moral  interest;  but  it  has 
important  economic  bearings.  The  principle  itself 
is  indisputable.  Not  only  is  the  workman  brought 
near  his  fellows,  and,  by  such  contact,  stimulated  to 
industry,  to  acquisition,  to  taste;  not  only  does  such 
association  of  purposes  and  means  afford  more  of 
the  instruments  of  intellectual  advancement, — 
schools,  lectures,  churches,  journals  ;  not  only  does 
the  close  neighborhood  of  mind  quicken  and 
brighten  all  the  faculties,  teaching  by  example,  and 
firing  by  controversy;  but,  by  such  association, 
workmen  are  brought  nearer  their  employers,  have 
a  greater  sympathy  and  co-operation,  act  intelli- 
gently and  harmoniousl}'  as  to  their  rights,  and  form 
a  public  opinion  among  themselves  which  has  often 
been  found  a  great  power,  economically  and  civilly. 


62  PRODUCTION. 


CHAPTER   IV. 

LIMITATIONS   TO   THE   DIVISION   OF   LABOR. 

BUT  the  great  principle  of  division  of  labor,  8O 
very  beneficial  in  its  operations,  is  yet  limited  by 
certain  conditions,  which  it  cannot  disregard. 

1st.  When  the  principle  has  been  so  far  applied 
that  each  operation  has  been  made  as  simple  and 
fully  a  unit  as  human  ingenuity  can  devise.  Be- 
yond this,  there  is  no  division,  but  only  repetition. 
Any  attempt  to  refine  the  process  so  far  as  to  give 
the  workman  less  than  one  naturally  complete 
motion  of  the  body,  will  only  embarrass  and  delay 
industry. 

2d.  When  the  concentration  of  capital  has  become 
so  great  that  interested  personal  supervision  cannot 
be  brought  to  bear  upon  each  department,  and  upon 
the  whole  enterprise,  with  sufficient  intensity  to  in- 
sure efficiency  and  fidelity  on  the  part  of  those  em- 
ployed, and  harmony  in  the  general  conduct  of  the 
business.  Beyond  this  point,  the  advantages  derived 
from  the  power  of  concentration  are  neutralized.  It 
may  become  mischievous.  It  is  well  that  there 
should  be  limitations,  because  they  prevent  such 
aggregations  of  capital  as  would  swallow  up  the 
whole  industry  of  a  state. 

3d.  Where  the  industry  consists  of  an  indefinite 
number  of  parts,  yet  the  special  circumstances  will 
not  allow  each  workman  profitable  employment  in 


LIMITATIONS    TO    DIVISION    OF    LABOR.  53 

a  single  operation, — for  example,  agriculture  in  most 
of  its  branches :  first,  from  the  fact  that  its  opera- 
tions cannot  be  sufficiently  localized ;  and,  second, 
from  the  necessities  of  the  seasons.  No  department 
is  capable  of  so  much  subdivision  as  this ;  yet,  in 
practice,  none  experiences  so  little.  In  mining,  the 
fisheries,  and  many  incidental  matters,  it  is  effected 
to  a  considerable  extent :  but,  in  most  of  the  parts 
of  pure  agriculture,  it  has  very  limited  range. 

Generally  speaking,  the  farmer  is  a  laborer  of  a 
thousand  duties. 

This  fact  alone  does  not  account  for  the  different 
productiveness  of  the  manufacturing  and  the  agri- 
cultural interests.  In  the  nature  of  their  objects,  it 
is  found  that  machinery  must  be  applied  to  them  in 
far  different  proportions.  The  mechanic  arts,  which 
can  be  localized  to  the  highest  degree  of  concentra- 
tion, and  made  general  to  all  seasons  of  the  year, 
admit  also  of  prodigious  multiplication  by  artificial 
agents.  From  these  considerations,  we  deduce  the 
principle,  that  the  value  of  agricultural  products,  as 
a  class, — that  is,  their  power  in  exchange  for  pro- 
ducts other  than  agricultural, — will  be  constantly 
increasing.  A  bushel  of  corn,  in  1820,  would  pur- 
chase only  four  yards  of  cotton  cloth.  In  1860,  it 
would  purchase  ten  yards  of  the  same  or  better 
quality.  This  difference  will  continue  to  grow  wider 
and  wider  as  the  mechanic  arts  advance;  but  not 
indefinitely,  inasmuch  as  the  materials  of  manufac- 
tures are  always  themselves  of  agricultural  origin, 
•and  hence  the  depreciation  of  the  price  is  limited. 

We  have  thus  far  spoken  of  the  division  of  labor 
as  applied  only  to  direct,  material  production,  affect- 

5* 


£>4  PRODUCTION. 

ing  the  laboring  classes,  and  those  immediately 
superintending  them;  but  the  principle  has  been 
extended  to  mental  labor,  as  well  as  that  which  is 
simply  muscular. 

The  recognition  of  professions  and  industrial 
classes  is  itself  a  tribute  to  the  great  principle  of 
the  division  of  labor ;  but  it  proceeds  still  further, 
to  assign  special  functions,  within  those  professions 
and  classes,  to  individual  members.  Thus  the  law, 
when  a  sufficient  concentration  of  legal  labor  is 
secured,  branches  into  the  departments  of  titles  and 
conveyances,  of  insurance,  of  marine  losses,  forfeiture 
and  salvage,  of  patents,  of  criminal  jurisprudence, 
etc.  In  medicine,  the  eye,  the  ear,  the  skin,  con- 
sumption, fevers,  cancers,  have  each  their  own  prac- 
titioners. 

That  science  and  skill  are  promoted  by  such  sub- 
division, and  that  the  immediate  efficiency  of  pro- 
fessional labor  is  greatly  increased  thereby,  cannot 
be  intelligently  questioned. 

As  any  community  advances  to  a  higher  civiliza- 
tion, specialties  are  more  and  more  resorted  to.  In- 
dividuals, finding  themselves  peculiarly  adapted  by 
their  talents  and  tastes  to  a  particular  calling,  or 
having  unusual  advantages  for  the  pursuit  of  it,  give 
themselves  up  to  that  object.  They  concentrate  upon 
it  their  thoughts,  their  time,  and  their  resources. 
They  excel.  They  know  more,  and  can  do  better, 
in  their  chosen  line  than  those  about  them.  This 
gives  them  position  and  power.  They  are  sought 
for,  are  looked  to,  because  they  have  something  that 
is  wanted.  No  matter  how  humble  his  station,  or 
how  minute  his  field  of  investigation,  if  a  man  under- 


DISADVANTAGES    OF    DIVISION    OF    LABOR.  55 

stands  something  perfectly,  his  world — whether  a 
hamlet  or  an  empire  or  the  race — will  resort  to  him. 
He  becomes  a  benefactor  of  society. 


CHAPTER   Y. 

THE    DISADVANTAGES    OF   THE    DIVISION    OF    LABOR. 

1st.  It  tends  to  enervate  the  laborer,  because  it 
does  not,  as  a  general  fact,  give  full  activity  and  de- 
velopment to  all  the  functions  of  the  body. 

In  the  material  occupations,  it  is  found  that  con- 
finement to  a  single  operation  is  often  highly  injuri- 
ous. There  are  forms  of  labor  which  sufficiently  ex- 
ercise the  several  parts  of  the  body.  But  there  are 
those  which  require  the  constant  fatiguing  use  of 
some  member,  to  the  injury  of  the  rest  of  the  body ; 
others  require  a  cramping  posture  that  oppresses  and 
disorders  the  vital  organs;  others  still  require  the 
workman  to  poison  his  blood  with  unwholesome 
gases.  In  the  great  centres  of  capital  and  labor, — 
whether  we  regard  the  mill,  or  that  larger  mill,  the 
city  itself, — it  is  notorious  that  distortion,  paralysis, 
and  organic  feebleness  are  more  common  than  where 
labor  is  diffused,  and  the  laborer  changes  his  work 
and  his  place  frequently. 

That  this  will  occur  in  the  course  of  all  manufac 
taring  industry  is  probable.     That  it  is  inevitable 
does  not  so  clearly  appear.     The  sanitary  arts  keep 
even  pace  with  the  advance  of  machinery.    The  civil 
war  in  America   developed   astonishingly   the   re- 


56  PRODUCTION. 

sources,  which  are  at  the  command  of  government, 
to  suppress  malaria,  and  reform  the  habitations  of 
disease.  The  growth  of  manly  sports,  and  the  cul- 
tivation of  gymnastics  for  health's  sake,  are  likely  to 
work  a  great  change  for  the  better  in  the  sanitary 
conditions  of  our  people.  Besides,  a  gradual  reduc- 
tion in  the  hours  of  labor  is  very  certain  to  take  place 
with  the  introduction  of  improved  machinery.  Once 
twelve  hours  constituted  a  day's  work  in  the  factories 
of  New  England.  Eleven  hours  has  since  been 
adopted,  and  now,  in  many  cases,  ten  hours  constitute 
a  day's  work.  A  strong  effort  is  being  made  to  secure 
that  number  of  hours  as  the  maximum  for  all  women 
and  children.  This  is  not  only  humane  and  just,  but 
truly  economical ;  since  it  cannot  admit  of  a  doubt 
that  ten  hours  is  the  utmost  limit  at  which  the  health 
and  longevity  of  those  classes  can  be  preserved,  while 
no  small  children,  if  allowed  to  work  at  all  in  facto- 
ries, should  be  employed  more  than  half  a  day. 

Mechanical  operations  were  formerly  considered 
as  disqualifying  for  military  service;  and  even  our 
modern  philosophy  has  found  in  them  a  reason  for 
the  employment  of  mercenaries,  and  the  maintenance 
of  standing  armies.  But  the  great  civil  war  just  re- 
ferred to  exhibited  the  novel  fact,  that,  beyond  all 
dispute,  the  troops  raised  in  agricultural  districts  are 
not  so  hardy  in  the  privations  and  exposures  of  camp 
and  field  as  those  coming  from  the  towns.  This  does 
not,  however,  imply  a  better  state  of  health  at  home. 
It  may  be,  that  the  latter  class  find,  in  the  constant 
exercise  and  the  out-door  employment,  just  that 
change  of  habit  and  condition  which  they  needed. 
All  that  is  different  from  their  usual  course  of  life  is 


DISADVANTAGES    OF    DIVISION    OF   LABOR.  57 

in  the  direction  of  more  air  and  light  and  motion ; 
while  the  agricultural  laborers  find  no  change  except 
for  the  worse. 

2d.  This  system,  in  some  of  its  applications  and  in 
certain  degrees  of  extension,  does  not  give  that  full 
employment  and  expansion  to  all  the  powers  of  the 
mind  which  its  normal  development  requires.  This 
is  obvious.  The  mind,  if  intensely  devoted  for  a 
whole  life  to  a  single  effort,  and  that  perhaps  of 
the  most  simple  kind,  cannot  but  be  unfavorably 
affected.  Unless  counteracting  influences  are  re- 
sorted to,  it  will  undoubtedly  be  contracted  and 
enervated. 

To  this  liability  are  opposed  three  compensations: 

a.  The  great   communicativeness   observable   in 
sucn  circumstances,  the  eager  discussions,  the  free 
inquiry,  the  school,  and  the  lyceum. 

b.  The  saving  principle  that  the  employment  <^f 
one  member  is,  to  a  certain  extent,  the  employment 
of  all.     The  human  faculties,  mental  and  physical, 
are  a  knot.     They  interpenetrate  so  completely  that 
it  is  impossible  to  move  one  without  affecting  the 
rest.     The  special  use  of  one  may  develop  it  greatly  ; 
make  it  more   strong  and  active  than  the  others. 
But  such  a  predominance  is  not  distortion.     Few 
minds  are  capable  of  even  and  temperate  growth. 
In  this  principle  resides  the  variety  of  human  char- 
acter.    It  may  be  questioned  whether  any  but  the 
most  gifted  can  be  educated  in  any  other  way  so 
thoroughly  and  efficiently  as  by  interested  applica- 
tion  to  some    single   matter.     Generalization    and 
broad  philosophy  rouse  the  full  powers  of  but  few 
intellects.     In  the  majority  of  cases,  it  will  remain 


58  PRODUCTION. 

true  that  intense,  spirited,  persistent  labor  directed 
to  one  point  is  better  than  the  languid,  nerveless, 
unspurred,  rambling  play  of  all  the  faculties. 

Indeed,  the  argument  against  division  of  labor  on 
this  score  would  be  better  expressed  by  saying,  that 
the  constant  repetition  of  single  acts  so  far  dispenses 
with  thought,  and  even  with  consciousness,  in  the 
operation,  that  it  makes  man,  in  some  sense,  a  ma- 
chine. This  is,  to  a  considerable  extent,  true;  the 
compensation  being  that  it  affords  a  greater  oppor- 
tunity for  discussion  and  reflection,  if  the  workman 
chooses  to  avail  himself  of  the  kind  of  mental  leisure 
which  is  afforded  by  the  monotony  of  his  occupa- 
tion. 

c.  The  laborer  is  not  all  workman.  While  his 
special  occupation  provides  for  his  subsistence,  and 
endows  him  with  energy,  industry,  and  concentra- 
tiveness  of  mind  and  character,  he  has  other  hours 
and  other  duties,  ample,  if  reasonably  used,  to  com- 
pensate for  all  the  evil  mental  effects  of  his  contin- 
uous toil. 

It  will  be  observed,  that  it  is  only  to  the  division 
of  labor  beyond  a  certain  point,  that  the  objections  we 
have  discussed  have  any  application.  A  more  ill- 
developed  society,  with  more  ill-developed  members, 
could  not  be  conceived  than  where  this  principle 
was  not  applied  to  all.  In  fact,  there  could  be 
neither  members  nor  society ;  but  here  and  there  a 
savage  would  bask  in  the  summer  sun,  or  hide  him- 
self in  the  storms  of  winter,  in  hopeless,  helpless 
barbarism. 

However  we  may  speculate,  a  priori,  on  the  conse- 
quences of  dividing  minutely  the  parts  of  labor,  we 


DISADVANTAGES    OF    DIVISION    OF    LABOR. 

may  perhaps  get  a  stronger  light  and  a  better  view 
by  observing  the  mightiest  experiment  of  industry 
ever  known  in  the  world,— that  of  England  to-day. 
Nowhere  are  the  natural  advantages  of  agriculture 
more  apparent ;  nowhere  has  manufacturing  been 
more  elaborated.  Yet  no  person  can  be  cognizant 
of  the  condition  of  the  English  population  without 
being  assured  that  the  manufacturing,  laboring  class 
is  far  above  the  agricultural  in  intelligence,  in  inde- 
pendence of  character,  and  obedience  to  law. 

3d.  It  will  follow,  from  what  has  been  already 
urged,  that  division  of  labor,  in  its  greatest  exten- 
sion, has  a  tendency,  or  at  least  there  is  found  in  it 
a  liability,  to  lower  the  average  of  health,  to  shorten 
life,  and  prevent  the  natural  increase  of  population. 

All  these  results  are  found,  on  examination,  more 
or  less,  but  still  above  the  general  facts  of  the 
country,  in  all  the  great  centres  of  manufacturing 
industry,  where  the  full  possibilities  of  the  mechanic 
arts  are  realized  by  the  intense  subdivision  of  labor. 
This  result  can  only  be  partially  and  confusedly 
shown  by  statistics :  still  enough  can  be  extracted 
to  assure  us  that  there  is  a  great  loss  of  vital  energy, 
whether  or  not  it  is  necessary  to  such  a  state  of  in- 
dustry. 

The  American  average  of  life  may  be  expressed 
nearly  as  follows:* 

Cultivators  of  the  earth 64  years. 

Active  mechanics  out  of  shops     ....  50      " 

Active  mechanics  in  shops 47£    " 

Inactive  mechanics  in  shops 41£    " 

Laborers,  no  special  trades  •     .     .     .  45£    u 

*  Massachusetts  Eegistration  of  Births,  Deaths,  and  Marriages. 


60  PRODUCTION. 

These  statistics,  accurately  gathered  and  showing 
the  results  of  many  years,  require  correction  in 
several  particulars,  if  the  real  lesson  of  them  is  to 
be  obtained.  In  the  first  place,  two-thirds  of  the 
class  of  mechanics  as  presented  here  are  engaged  in 
puch  occupations  as  do  not  allow  any  very  extended 
subdivision  of  the  parts,  so  that  the  average  of  the 
great  manufacturing,  establishments  and  their  de- 
pendent cities  would  be  found  still  more  striking. 
In  the  second  place,  the  agricultural  occupations  are 
continually  making  contribution  to  manufactures 
of  their  best  blood  and  bone,  renewing  the  natural 
waste  of  the  mill  and  shop,  and  so  interfering  with 
the  statistics  of  the  subject.  This  element  can 
neither  be  eliminated  nor  determined.  So  impor- 
tant is  it  at  times,  that  Lowell  appears  on  the 
tables  as  one  of  the  healthiest  cities  of  America.  It 
is  unquestionably  true  that  much  of  the  historical 
feebleness  and  mortality  of  such  places  has  been 
avoided  by  more  humane  and  intelligent  precau- 
tions, by  gymnastic  sports  and  out  door  games,  and 
by  a  better  adaptation  of  all  the  conditions  of  produc- 
tion to  the  necessities  of  life  and  well  being.  But  the 
great  fact  which  accounts  for  this  seeming  healthful- 
ness  of  a  manufacturing  city  is  the  constant  infusion 
of  the  fresh,  vigorous,  young  blood  of  the  country. 
/4th.  The  division  of  labor  lessens  the  number  of 
those  who  do  business  on  their  own  account.  The 
result  of  this,  in  agriculture,  is  to  absorb  the  yeo- 
manry into  the  class  of  those  who  labor  by  the 
day  or  month,  with  no  interest  in  the  land.  The 
result  in  manufacturing  is  to  subordinate  hundreds 
of  operatives  to  the  control  of  a  single  will.  This 


DISADVANTAGES    OF    DIVISION    OF    LABOR.  61 

has  a  threefold  relation  :  a.  To  the  formation  of 
character.  Something  of  independence  and  self-re- 
spect is  unquestionably  lost,  so  far  as  these  depend 
on  external  conditions.  Position  and  responsibility 
do  foster  and  strengthen  manliness  and  self-mastery. 
By  the  division  of  labor,  the  independence  of  each 
is  sacrificed  to  the  good  of  all.  It  will  not  be 
doubted,  that,  on  the  whole,  it  is  desirable  that  it 
should  be  so ;  nor  can  it  be  denied  that  there  are 
partial  drawbacks,  even  in  this  plain  tendency  of 
civilization.  It  is  the  sacrifice  man  has  to  make  in 
society,  in  industry,  in  government,  b.  To  the  fair- 
ness of  remuneration.  A  very  few  now  participate 
in  the  profits.  The  great  bulk  of  workmen  receive 
only  wages,  and  that  on  temporary  engagements. 
This  disproportion  may  be  excessive,  and  is  likely 
to  be  where  laws  or  institutions  check  enterprise, 
and  discourage  individual  effort.  In  such  cases, 
laborers  are  practically  a  herd  of  cattle,  driven  about 
from  place  to  place,  receiving  bare  subsistence,  and 
unable  to  mend  their  condition.  But,  even  if  we 
come  forward  from  the  barbarous  state  to  that  in 
which  the  work  of  man  has  divided  itself  into 
numerous  trades,  each  of  these,  however,  yet  re- 
maining distinct,  and  compare  this  with  the  present 
state,  in  which  trades  have  been  repeatedly  subdi- 
vided,— capital  aggregate  and  labor  subordinate, — 
we  shall  yet  find  that  the  share  of  the  poorest  laborer 
in  the  mighty  product  of  our  industry  of  to-day  is 
greater  than  ever  before.  Augustus,  says  Arbuth- 
not.  had  neither  glass  to  his  windows  nor  a  shirt  to 
his  back. 

Thus  much  could   be  urged  of  the  wretchedest 
6 


62  PRODUCTION. 

operatives  on  the  earth ;  but,  when  we  regard  the 
condition  of  labor  as  it  exists  in  nearly  all  the  coun- 
tries of  the  world,  we  shall  quickly  confess,  that, 
though  the  laborer  has  given  up  his  share  of  profits, 
he  receives  back,  as  wages,  far  more  objects  of  desiro- 
than  he  could  have  obtained  in  the  old  way.  c.  To 
the  steadiness  of  employment.  By  the  attraction  of 
labor  to  great  centres,  the  fate  of  many  laborers  is 
made  dependent  on  that  of  a  few  capitalists.  This 
is  a  great  fact,  scientifically  and  historically.  It 
must  continue.  It  has  issued,  in  the  past,  in  the 
form  of  great  industrial  distresses,  of  a  general  sus- 
pension of  mechanical  labor  from  causes  affecting 
only  the  mercantile  credit  of  the  employers,  of  frantic 
appeals  for  support,  of  laws  in  which  government 
assumes  the  duty  of  providing  work  for  its  whole 
population,  of  riots  and  revolution.  So  far  as  this 
will  occur  in  spite  of  prudence  and  careful  manage- 
ment, it  is  the  condition  on  which  we  have  the  ad- 
vantages of  division  of  labor. 

Where  capital  is  concentrated,  it  is  stronger,  pro- 
tects itself  better;  and,  of  course,  the  workman 
shares  in  this  power  and  immunity.  Where  the  in- 
dustry of  thousands  is  controlled  by  the  mind  of 
one,  it  will  be  more  intelligently  and  harmoniously 
administered,  and  with  a  larger  view  of  the  busi- 
ness. By  such  superiority  of  union  in  production 
(for  that  is  synonymous  with  division  of  labor),  the 
industry  of  a  country  is  lifted  clean  over  obstacles 
which  individual  enterprise  could  not  pass, — is  pre- 
served amid  storms  that  would  shatter  the  feeble 
tabric  of  single  hands. 

But  when  the  blow  becomes  so  heavy  as  to  shatter 


DISADVANTAGES   OF   DIVISION   OF   LABOR.  63 

even  the  great  workshops  of  modern  industry,  and 
they  come  down,  then  truly  the  fall  is  great.  The 
ruin  is  more  complete  than  if  the  storm  had  pros- 
trated a  village  of  huts.  The  reservoir  of  gathered 
power  has  burst;  the  springs  have  long  since  been 
broken  down  ;  the  wells  been  filled  up ;  and  there 
is  no  supply  for  immediate  wants.  Such  a  loss  is 
repaired  slowly.  Independent  has  been  discouraged 
by  collective  industry;  the  shop  has  been  abandoned 
for  the  mill ;  each  workman  has  learned  only  the 
fraction  of  a  trade;  no  one  can  buy,  make,  and  sell; 
no  one  dares  to  undertake  any  business,  foreseeing 
that  the  corporation  must  rise  again.  For  awhile, 
all  is  distress.  It  is  only  when  the  stately  fabric  of 
associated  industry  is  reared  again  that  plenty  is 
known  in  the  land. 

We  have  discussed,  somewhat  at  length,  the  rela- 
tions which  division  of  labor  holds  to  the  condition 
of  the  laborer,  by  depriving  him  of  the  opportunity 
to  do  business  on  his  own  account.  Until  recently, 
it  has  been  supposed  that  .the  advantages  of  the 
principle  could  not  practically  be  obtained  without 
this  defect;  that  capital  could  not  be  concentrated, 
and  the  trades  perfected,  without  diminishing  the 
independence  and  self-reliance  of  labor.  But  recent 
developments  seem  to  be  anticipating  the  objection. 
It  is  now  a  matter  of  common  practice  to  admit  the 
laborer  to  an  interest  in  business, — a  share  in  profits. 
This  is  done  by  merchants  to  their  salesmen,  by  mas- 
ter-mechanics to  their  workmen,  by  ship-owners  to 
their  hands. 

5th.  This  system,  as  it  necessarily  occasions  the 
concentration  of  the  laboring  classes,  and  thus 


64  PRODUCTION. 

affords  opportunities  for  inter'commu'nicatfcion,  natu- 
rally gives  rise  to  labor  combinations  and  strikes, 
— a  subject  to  be  discussed  hereafter. 

We  have  passed  through  the  discussion  of  the  ad- 
vantages, the  limitations,  and  the  disadvantages  of 
the  division  of  labor. 

If,  now,  we  inquire  on  which  side  the  balance  lies, 
there  will  be  no  question  that  it  is  in  favor  of  the 
application  and  extension  of  the  law.  It  appears  as 
the  great  multiplying  power  of  modern  industry ;  it 
has  made  the  difference  between  barbarism  and 
civilization;  it  resides  in  man's  being  as  the  prin- 
ciple of  help ;  it  is  the  only  name  that  savage  nature 
fears. 


CHAPTER    VI. 

THE    CO-OPERATION    OF   CAPITAL. 

THIS  is  the  second  grand  condition,  through  which 
the  productiveness  of  labor  is  increased. 

We  have  before  spoken  of  capital :  we  now  pro- 
ceed to  define  it  strictly. 

It  is  that  portion  of  wealth  employed  in  reproduc- 
tion. 

The  distinction  involved  is  an  important  one. 
All  capital  is  wealth,  but  all  wealth  is  not  capital. 
Since  it  is  recognized  that  human  wants  create 
others  of  their  kind,  and  hence  go  on  increasing  in 
number  and  urgency,  it  is  necessary  that  human 
efforts  should  find  some  force  having  a  corresponding 


THE    CO-OPERATION    OF    CAPITAL.  65 

rate  of  increase,  by  which  to  assist  themselves  in 
supplying  the  growing  demand.  Such  an  agent  is 
found  in  capital  which  is  taken  out  of  wealth . 

A  man  may  have  much  wealth,  and  use  little  j 
capital.  Wealth  is  as  it  is  had;  capital,  as  it  is  usedJ 
For  example,  a  man  may  live  in  a  house  worth  thirty 
thousand  dollars,  and  have  ten  thousand  dollars  in- 
vested in  a  ship,  from  which  he  derives  all  his  sup- 
port, and  which  forms  his  capital.  It  may  be  asked, 
is  not  the  house  itself  capital  ?  It  is,  so  far  as  neces- 
sary to  production,  in  sheltering  the  producer  and 
his  family,  even  with  the  style  and  comfort  usual  to 
such  a  degree  of  society.  Beyond  this,  it  ceases  to 
be  capital.  It  is  devoted,  not  to  the  creation  of 
values,  but  to  personal  enjoyment  and  culture;  noble 
and  worthy  ends  for  wealth,  but  not  for  capital. 

We  may  change  the  supposition.  The  man  may 
have  a  house  worth  ten  thousand  dollars,  and  ships 
to  the  value  of  thirty  thousand  dollars.  The  differ- 
ence to  production  will  be  apparent,  inasmuch  as  his 
active  capital  now  consists  of  three-fourths  of  his 
wealth,  while  before  it  was  only  one-fourth. 

It  will  follow  from  this  illustration,  that  there  is 
much  of  the  wealth  of  the  world  which  it  is  difficult 
to  classify  whether  as  capital  or  not,  much  in  which 
the  two  ends  unite,  much  in  which  the  share  de- 
voted to  reproduction  is  doubtful.  Still,  this  casts 
no  discredit  on  the  distinction  itself,  which  stands 
manifest  to  all. 


6* 


66  PRODUCTION. 


ORIGIN   OF    CAPITAL. 

How  does  capital  arise  ? 

From  the  net  savings  of  labor.  A  person  who 
earns  five  hundred  dollars  a  year,  and  places  one 
hundred  dollars  of  it  in  a  savings-bank,  or  invests  it 
in  land  or  machinery  or  railroad  stock,  or  anywhere 
at  work,  has  increased  his  own  capital  and  the  capital 
of  the  country  by  so  much.  It  is  not  what  he  lays 
aside  for  use  in  his  own  occupation  merely,  but  for 
use  anywhere. 

All  capital  comes  in  this  way.  A  country  in- 
creases in  capital  just  in  proportion  to  the  increase 
of  capital  accumulated  by  its  members.  If  the  indi- 
viduals of  a  nation  apply  none  of  their  net  income 
to  reproduction,  there  is  no  increase  of  the  national 
capital.  If  they  withdraw  any  of  thei  r  capital  to  meet 
personal  consumption,  the  country  becomes  poorer. 

Many  of  the  considerations  which  pertain  to  the 
accumulation  of  capital,  and  the  ultimate  use  of  it, 
belong  to  the  discussions  of  economic  culture,  or  go 
further  on,  to  the  general  division  of  "Consump- 
tion." We  have  simply  to  do  with  those  principles 
which  apply  existing  capital  to  the  wants  of  present 
labor. 

Capital  is  known  as  "  fixed"  or  "  circulating." 

Fixed  capital  consists  of  every  description  of  prop- 
erty employed  in  production,  which,  from  its  nature, 
cannot  be  advantageously  changed  to  any  other  use 
than  that  for  which  it  was  originally  designed.  The 
land,  buildings,  and  tools  of  the  farmer,  the  ships 
and  warehouses  of  the  merchant,  the  machines  and 
implements  of  the  manufacturer,  belong  to  this  class. 


THE    CO  OPERATION    OF    CAPITAL.  67 

They  must  be  used  for  the  purposes  to  which  they 
are  particularly  adapted,  or  they  have  little  value. 
They  are  fixed.  The  ship  cannot  be  used  as  a  wagon, 
or  the  spinning-jenny  as  a  locomotive. 

Circulating  capital,  on  the  other  hand,  consists  of 
those  articles  or  commodities  which  can  be  readily 
changed  from  one  purpose  of  production  to  another. 
Of  this  class  are  the  stock  arid  produce  of  the  farmer, 
the  money  and  wares  of  the  merchant,  the  raw  ma- 
terials of  the  mechanic.  These  are  easily  transferred 
from  one  business  to  another,  and  indeed  from  one 
place  to  another,  and  may  be  used  in  a  great  variety 
of  forms.  Of  all  these,  money  is  the  most  mobile, 
as  it  can  be  changed  without  delay  or  loss  to  any 
occupation  or  locality. 

Fixed  is,  in  its  nature,  more  permanent  than  cir- 
culating capital,  not  merely  in  its  adaptations,  for  its 
name  implies  that,  but  in  its  existence.  The  greater 
part  of  circulating  capital — stock  and  materials,  for 
example  —  is  held  only  in  the  immediate  view  of 
transmuting  or  transferring  or  transporting  it,  so  that 
it  shall  pass  into  fixed  capital.  There,  on  the  con- 
trary, it  has  taken  its  ultimate  form.  If  it  loses  this, 
it  is  only  by  destruction.  It  does  not  intend  to  assume 
any  higher  condition. 

It  is  in  this  way  that  fixed  capital  receives  the 
mighty  annual  additions  which  astonish  us  on  the 
page  of  the  statistician.  The  products  of  last  year 
form  a  part  of  the  houses,  ships,  railroads,  and  ma- 
chinery of  the  present.  The  farmer  adds  something 
to  his  stock,  or  his  land,  or  his  buildings.  The  me- 
chanic widens  his  shop,  and  multiplies  his  tools. 
The  merchant  enlarges  his  business,  and  extends  his 


68  PRODUCTION. 

connections.  The  laborer  saves  something  out  of 
his  wages,  beyond  the  demands  of  immediate  sub- 
sistence. It  is  in  this  way  that  fixed  capital  is  in- 
creased by  the  contributions  of  circulating  capital. 

In  popular  language,  all  wealth  is  divided  into 
real  estate  and  personal  property.  This  distinction, 
if  not  scientific,  is  convenient  for  occasional  use.  We 
must  bear  in  mind,  however,  that,  while  all  real  es- 
tate is  fixed,  all  personal  property  is  not  circulating 
capital.  Ships,  machinery,  and  many  other  things 
not  attached  to  the  soil,  are  personal  property,  though 
standing  in  the  category  of  fixed  capital. 

PRODUCTIVE    AND    UNPRODUCTIVE    CAPITAL. 

Is  the  distinction  between  productive  and  unpro- 
ductive capital  real?  It  has  been  urged  by  many 
writers  at  considerable  length.  It  is  susceptible  of 
much  illustration.  It  involves  many  important  con- 
siderations. 

There  is,  however,  no  such  thing  as  unproductive 
capital.  There  may  be  misapplied  wealth,  misused 
wealth,  wasted  wealth  ;  but  capital  reproduces.  If 
any  discrimination  is  necessary  between  that  portion 
of  wealth  which  is  applied  successfully  to  reproduc- 
tion, and  that  which  is  intended  for  such  an  end,  but 
fails  in  attaining  it,  we  may  say  that  capital  is  that 
portion  of  wealth  applied  to  reproduction,  which 
secures  a  compensation  to  its  owner.  Whatever  his 
intention,  if  he  uses  any  part  of  his  wealth  without 
multiplying  it,  it  remains  wealth  ;  he  has  not  made 
it  capital ;  it  may,  by  unproductive  use,  cease  even 
to  be  wealth.  Wealth  put  into  an  enterprise  which 


THE    CO-OPERATION    OF    CAPITAL.  69 

results  in  nothing  is  no  more  capital  than  wealth  put 
into  a  house  which  burns  down. 

Nay,  more :  so  far  as  wealth  thus  appliedv  while 
making  some  return,  fails  of  securing  the  fair,  aver- 
age remuneration  of  capital,  it  so  far  ceases  to  be 
capital.  It  may  be  wealth  merged  for  a  time;  it 
may  be  wealth  lost  forever :  it  is  not  capital. 

A  complete  illustration  of  this  principle  is  found 
in  common  business.  Suppose  a  man  to  be  pos- 
sessed of  fifty  shares  of  certain  stock,  par  value  one 
hundred  dollars.  The  enterprise  does  not  succeed ; 
the  stock  does  not  pay  adequate  dividends ;  the  value 
of  the  shares  has  sunk  to  fifty  dollars.  Would  any 
one  say  that  his  capital,  so  far,  was  five  thousand 
dollars  ?  Clearly,  it  is  but  two  thousand  five  hun- 
dred dollars.  Half  of  his  investment  has  been  sunk; 
halt  is  capital. 

But  it  has  been  urged  that  much  capital  is  repro- 
ductive that  does  not  afford  a  remuneration  to  its 
owner.  For  example:  a  railroad  is  projected  and 
built,  does  not  pay;  its  stock  sinks  to  nothing;  yet, 
though  it  does  not  pay  dividends,  it  improves  the 
industry  of  the  country  through  which  it  passes. 

We  have  nothing  to  do,  in  the  discussion  of  pro- 
duction, with  any  such  incidental  advantages,  even 
if  they  exist.  It  may  be  that,  in  the  consumption  of 
wealth,  we  shall  find  principles  explaining  the  effects 
of  such  an  investment. 

In  the  light  of  production,  however,  we  can  only 
say  that,  in  so  far  as  the  railroad  does  not  remuner- 
ate its  owner,  it  ceases  to  be  capital.  So  far  as  it 
is  supposed  to  promote  agriculture  or  manufactures, 
and  indirectly  help  the  industry  of  the  community, 


70  PRODUCTION. 

it  is  simply  on  the  level  of  the  gratuitous  gifts  of 
Nature, — the  powers  of  the  wind,  rain,  and  sun,  or 
the  courses  of  streams  and  valleys;  assisting  man 
unquestionably,  but  having  no  value,  being  neither 
capital  nor  wealth.  A  canal  that  does  not  pay  for 
its  building  is  no  more  capital  than  a  river. 


CHAPTER  VII. 

UNION  OF  CAPITAL  AND  LABOR. 

HAVING  considered  the  two  great  agents  by  which 
all  wealth  is  created,  viz.,  capital  and  labor,  we  come 
to  speak  of  their  union,  and  to  inquire  under  what 
circumstances  it  will  be  most  effective. 

1st.  When  a  due  proportion  of  each  is  found. 
Labor  halts  without  capital ;  capital  wastes  without 
labor.  Which  shall  govern  the  other?  Which  shall 
be  the  fixed  quantity  to  which  the  other  must  con- 
form ?  Labor,  certainly,  because  it  is  less  variable 
in  amount.  It  can  be  diminished  or  increased  but 
slowly,  depending  as  it  does  on  the  propagation 
of  the  human  race ;  an  element  that  is  determined 
positively,  in  the  old  countries,  to  a  very  gradual 
growth,  and,  in  new  countries,  has  never  more  than 
doubled  itself  in  thirty  or  forty  years.  Capital,  on 
the  contrary,  is  liable  to  very  rapid  fluctuations;  can 
be  accumulated,  under  favorable  circumstances,  with 
great  ease;  and  can  be  wasted  or  scattered  just  as 
fast  under  different  conditions. 

Labor,  then,  being  that  which  is  most  restricted 


UNION    OF    CAPITAL    AND    LABOR.  71 

in  quantity,  capital  must,  in  order  to  the  highest  pro- 
duction, conform  to  it.  There  must  be  as  much 
capital  as  labor  requires,  not  as  much  labor  as  capital 
needs.  We  do  not  put  this  on  the  ground  of  any 
superior  rights  of  labor.  Capital  is  the  labor  of  the 
past,  and  has  rights  as  perfect  as  that  of  the  present. 
It  is  certain  there  should  be  as  many  tools  as  work- 
men needing  the  use  of  them,  else  some  must  stand 
idle.  It  is  equally  certain  that  an  excess  of  tools 
will  not  aid  in  production.  Capital  is  the  instru- 
ment of  labor,  and  should,  of  course,  be  adapted  to 
the  power  of  the  laborer  and  the  work  to  be  done. 

What  this  proportion  should  be  in  any  commu- 
nity, it  would  be  impossible  to  declare  beforehand, 
as  it  is  even  impossible  to  decide  precisely  what  it 
is  in  fact.  Still  less  could  a  proportion  be  deter- 
mined which  capital  should  bear  to  labor  in  all  com- 
munities. It  is  plain  that  this  will  vary  according 
to  the  occupation;  as,  for  instance,  we  have  seen 
that  in  agriculture  there  cannot  be  so  general  appli- 
cation of  machinery  as  in  the  manufactures;  while, 
on  the  other  hand,  because  its  operations  cannot  be 
localized  or  made  independent  of  the  seasons,  the 
number  of  tools  is  thereby  greatly  increased ;  each 
farmer  requiring  certain  tools,  yet  not  using  them  to 
their  full  capacity  at  any  season,  and  letting  them 
lie  idle  for  months. 

The  mechanic,  on  the  other  hand,  while  he  uses  a 
greater  share  of  tool-power,  has  it  yet  so  arranged 
that  the  tools  lie  idle  little  of  the  time. 

It  is  plain  that  the  proportion  will  vary,  also,  ac- 
cording to  the  natural  advantages  a  person  or  com- 
munity enjoys. 


72  PRODUCTION. 

By  the  census  of  1860,  "  the  real  and  personal 
property  of  the  Union  was  valued  (slaves  excluded) 
at  $14,183,000,000."*  A  calculation  made  at  the 
Treasury  Department  estimates  the  products  of  1860 
at  26-8  per  cent,  of  the  wealth  of  the  country  at  that 
time.  Without  intending  to  vouch  at  all  for  the 
correctness  of  this  estimate,  it  is  doubtless  approxi- 
mately true;  and,  if  so,  we  shall  be  surprised,  if  we 
look  at  the  large  proportion  of  annual  product  to 
the  accumulated  wealth  of  the  nation.  If,  for  the 
sake  of  convenience,  we  call  the  annual  product  25, 
instead  of  26-8  per  cent.,  we  find  that  it  amounts  to 
$3,545,750,000  per  annum.  It  certainly  appears 
almost  incredible  that  the  total  amount  of  wealth 
accumulated  in  the  country  since  its  first  settlement 
should  be  only  equal  to  four  times  the  product  in 
1860 ;  but  such  we  understand  to  be  the  statement. 
If  so,  it  shows  what  an  immense  proportion  of  all 
the  wealth  annually  produced  is  annually  consumed. 
From  these  figures,  too,  we  may  make  an  estimate 
of  the  proportion  of  the  product  which  belongs  to 
labor  and  capital.  Allowing  for  the  use  of  the  latter 
ten  per  cent.,  in  the  shape  of  interest  and  rent,  or 
use,  the  amount  will  then  stand  thus: 

Aggregate  national  wealth,  $14,183,000,000,  at  10  per  cent.,  is 
$1,418,300,000,  which  deducted  from  the  whole  product,  as  before, 
of  $3,545,750,000,  will  leave  us  the  share  of  labor,  $2,127,450,000, 
or  about  two-thirds  of  the  whole. 

From  these  statistics,  we  find  that  the  whole  na- 
tional wealth  is  only  equal  to  about  seven  times  the 
gross  earnings  of  labor  for  a  single  year. 

*  Report  of  the  Secretary  of  the  Treasury,  1865. 


UNION    OF    CAPITAL    AND    LABOR.  73 

"We  have  also  an  opportunity  of  comparing  the 
wealth  and  production  of  the  United  States  with 
Great  Britain.  The  estimated  wealth  of  the  latter, 
according  to  Leone  Levi  (see  his  work  on  Taxation, 
page  6),  is  $30,000,000,000,  or  $1000  per  capita;  the- 
estimated  yearly  production,  $3,000,000,000,  or  $100 
per  capita.  The  wealth  of  the  United  States,  accord- 
ing to  the  foregoing  figuring,  and  taking  the  whole 
population,  as  in  1860,  at  31,443,321,  is  $451  each; 
while  the  amount  of  product  per  capita  is  $112  each : 
so  that,  while  Great  Britain  has  more  than  double 
the  capital,  she  has  less  annual  product  per  capita. 
This  is  a  confirmation  of  the  well-known  fact,  that 
capital  and  lahor,  interest  and  wages,  are  at  least 
double  in  this  country  what  they  are  in  Great 
Britain.  We  must  not  confound  the  annual  pro- 
duct with  the  annual  accumulation  :  the  latter  being 
but  a  small  fraction  of  the  former. 

Capital  should,  at  least,  increase  in  a  degree  cor- 
responding to  the  increase  of  population.  If  it  does 
not,  labor  is  crippled,  wages  fall,  and  starvation 
eventually  ensues.  Ireland  may  be  quoted  as  an 
illustration.  Her  soil,  wrested  from  the  people  by 
conquest  at  different  periods,  from  the  reign  of 
Henry  II.  to  the  battle  of  the  Boyne,  has  passed 
into  the  hands  of  foreigners,  who  draw  away  an- 
nually all  her  surplus  products.  Population  in- 
creases from  year  to  year;  but  capital  does  not 
increase  correspondingly.  Nay,  even  the  waste  of 
the  soil  and  of  implements  is  not  fully  and  honestly 
supplied. 

What  is  the  necessary  consequence  ?  Increasing 
poverty,  and  ultimate  starvation  or  emigration.  We 

7 


74  PRODUCTION. 

have  said  that  capital  is  formed  from  the  annual 
savings  of  labor.  Four  million  pounds  a  year  go 
from  Ireland  to  absentee  landlords,  and  eight  mil- 
lion pounds  are  taken  away  every  year  in  taxes. 
.The  Irish  people  can  make  no  savings.  There  can 
be  no  increase  of  their  capital.  Starvation  or  emi- 
gration is  their  inevitable  fate.* 

Is  it  possible  that  there  should  be  a  surplus  of 
capital  ? 

It  is  evident  that  there  may  become  such  a  sur- 
plus, if  we  assume  that  production  itself  does  not 
expand  in  the  mean  time.  Given  a  certain  industry, 
within  defined  limits,  it  may  become  full  and  over- 
flowing with  its  accumulations.  By  economy  and 
thrift,  these  multiply  fast,  and  crowd  their  barriers. 
Common  observation  shows  this  to  be  often  true, 
with  the  enterprises  of  individuals.  The  excess  is 
transferred  to  other  branches,  or  withdrawn  for  per- 
sonal gratifications.  A  seamstress,  who,  by  saving, 
obtains  a  sewing-machine,  has  a  wonderful  help  in 
her  industry ;  but  a  second  sewing-machine  would 
not  assist  her  a  single  stitch. 

The  same  is  true  of  special  occupations.  The 
limit  of  profitable  production  being  reached,  the 
amount  of  capital  employed  cannot  well  be  in- 
creased. The  product,  being  generally  in  the  form 
of  circulating  capital,  now  flows  off  to  other  busi- 
ness, or  is  turned  to  purposes  of  adornment  and 
culture. 

*  From  9,000,000  before  the  famine  in  1846,  .the  population  fell 
rapidly  to  a  little  over  4,000,000.  At  this  point  the  equilibrium 
was  so  far  restored  that  wages  rose  to  a  rate  sufficient  to  secure  to 
the  laborer  a  decent  subsistence. 


UNION    OF    CAPITAL   AND    LABOR.  75 

The  same  is  also  found  true,  though  more  rarely, 
of  entire  communities.  States  and  cities  sometimes 
reach  the  limits  within  which  they  desire  to  use 
capital  in  their  traditional  industries.  They  beconfe 
bankers  for  the  world,  or  direct  their  profits  to  sump- 
tuous houses  and  works  of  art. 

It  is  evident,  then,  that,  within  the  bounds  of 
present  occupations,  capital  might  easily  attain  a 
surplus,  increasing  as  it  can  more  rapidly  than 
population.  It  is  productive  only  as  applied  by 
labor;  and  therefore  its  production  is  limited  by 
the  capacities  of  labor. 

But  in  fact,  and  on  the  whole,  the  limits  of  in- 
dustry do  not  remain  the  same.  Wants  expand,  as 
we  have  seen.  Capital  is  relieved  from  its  former 
employments,  and  goes  on  to  new  efforts. 

Yet  we  are  not  to  anticipate  the  same  rapid  prog- 
ress at  all  times  and  everywhere  which  we  see  in  a 
new  country  like  our  own,  full  of  wants,  and  stimu- 
lated to  efforts.  Capital  has  its  checks,  just  as  popu- 
lation has.  Theoretically,  steady  increase  is  certain 
in  both:  practically,  each  meets  obstacles;  is  lost 
here,  and  checked  there.  The  forces  which  operate 
to  stay  it  may  be  briefly  summed  up  as  follows:  a 
certain  disinclination  of  capital  to  emigrate;  the 
lessening  power  of  personal  supervision  from  a  dis- 
tance ;  and  a  distrust  in  the  administration  of  foreign 
laws. 

Another  constant  force  operating  against  the  in- 
crease of  capital  is  found  in  those  wants  of  man 
which  do  not  look  to  reproduction.  The  desire  to 
spend  is  just  as  truly  in  human  nature  as  the  desire 
to  earn,  and  can  be  as  accurately  calculated.  Hence 


T6  PRODUCTION. 

it  follows  that,  as  the  desire  to  earn  loses  power  by 
capital  becoming  plenty  and  cheap,  the  desire  to 
spend  gains  force. 

Yet  capital,  when  it  has  supplied  the  demands  of 
labor  in  its  own  vicinity,  has  gone  abroad  to  colo- 
nize. It  has  carried  on  great  wars  in  which  it  had 
no  interest,  has  developed  the  resources  of  infant 
states,  and  saved  old  nations  tottering  to  their  fall. 
Capital  has  gone  round  the  world  in  the  same  boat 
with  the  inspired  discoverer. 

2d.  The  union  of  capital  and  labor  will  be  most 
effective,  when  each  is  sure  of  its  just  reward.  If 
the  rights  of  man  as  a  holder  of  property  are  sacred, 
and  his  rights  as  laborer  equally  so,  the  greatest 
motive  to  production  can  be  secured.  If  otherwise, 
the  creation  of  wealth  will  be  restricted.  Men  will 
"not  work  or  save,  unless  sure  of  their  reward. 

There  cannot  come,  out  of  the  earth  or  heaven,  a 
blow  that  levels  all  industry  in  the  dust  so  quickly 
and  hopelessly  as  wrong  done  between  labor  and 
capital.*  Pestilence,  drouth,  or  floods  do  not  BO 
thoroughly  and  permanently  prostrate  the  strength 
and  hopes  of  a  country  as  a  breath  of  suspicion  on 
the  union  of  the  two  great  agents  of  production. 
Then  comes  an  antagonism,  indeed,  fatal  to  both. 
There  is  hardly  any  climate  or  soil  so  unpropitious 
that  man  will  not  struggle  on,  earning  his  livelihood 
with  much  endurance,  and  laying  something  by  for 
the  future.  There  is  hardly  any  government  so 
rigorous  as  wholly  to  suppress  the  energy  of  its 

*  It  will  be  recollected  that  production  carried  on  by  slaves  is 
done  wholly  by  capital :  the  producer  being  a  chattel,  the  whole 
product  is  that  of  capital. 


UNION    OF    CAPITAL    AND    LABOR.  77 

people.  There  is  hardly  any  taxation  so  exhaustive 
that  something  still  cannot  be  got  out  of  Nature  for 
man.  In  all  these  difficulties,  the  motive  to  exer- 
tion is  not  destroyed.  Bat  if  foul  play  or  legal 
fraud  comes  between  labor  and  capital  and  their  re- 
ward, the  very  life  of  industry  ceases  at  the  thought. 
The  spring  of  work  is  broken.  Its  admirable  parts 
and  its  cunning  mechanism  are  useless,  motionless. 

Labor  is  the  first  to  suffer.  Its  wants  are  instant, 
immediate,  vital.  Capital,  in  such  economical  con- 
vulsions, has  the  privilege  of  leviathan.  It  can  dive 
down  to  the  depths,  and  give  up  breathing  for  awhile. 
If  labor  goes  under,  it  dies. 

It  is  familiar  to  every  reader  of  history  how  th& 
brutal  rapacity  of  the  Spanish  conquerors  terrified 
the  nations  of  Peru  and  the  Antilles,  and  shut  up  the 
treasures  of  the  New  World  in  a  secrecy  that  even 
torture  could  not  break.  The  wisdom  of  the  man 
that  owned  the  hen  that  laid  the  golden  egg  has 
been  embodied  a  thousand  times  in  the  acts  of  gov- 
ernment. The  result  is  never  the  enriching  of  one: 
it  is  ever  the  ruin  of  all.  Wealth  itself  becomes 
valueless,  since  it  has  no  security  in  possession,  and 
only  excites  the  cupidity  of  the  common  tyrant. 

3d.  The  union  of  labor  and  capital  is  most  effect- 
ive when  the  latter  is  appropriately  distributed. 
Capital  creates  no  values  by  its  own  powers.  It 
must  be  joined  with  labor.  Somebody  must  use  it, 
bring  his  personal  energies  to  bear  upon  it,  set  it  in 
motion,  watch  its  operations,  work  with  it.  The 
farmer,  the  merchant,  the  manufacturer,  must  each 
bestow  constant  attention  on  the  capital  he  employs, 
or  no  good  will  come  of  it.  The  more  intense  and 

7* 


78  PRODUCTION. 

vigilant  the  application,  the  more  certain  the  return, 
the  larger  the  profits.  This  is  a  well-known  practi- 
cal principle;  and  from  it  follows  that  the  point  will 
be  reached  where  an  individual  has  so  much  capital 
under  his  control  that  his  entire  efforts,  by  himself 
and  those  working  under  his  direction,  are  not  suffi- 
cient to  secure  its  greatest  effectiveness. 

Such  limitations  are  highly  beneficial  to  society; 
for,  were  there  no  restrictions  of  this  kind,  were 
capital  in  vast  aggregations  equally  efficient  as  in 
smaller  bodies,  the  business  of  the  world  might  be 
controlled,  and  the  profits  appropriated  by  a  very 
few  persons. 

The  point  is  of  great  importance.  Such  a  con- 
centration of  capital  as  effects  the  highest  division 
of  labor,  and  the  fittest  application  of  machinery,  is 
desirable  for  the  interest  of  all:  and  for  those  pur- 
poses, and  up  to  such  a  degree,  capital  so  concen- 
trated has  a  wonderful  power  in  production.  But 
its  aggregation,  merely,  is  a  hinderance  rather  than 
a  help.  After  the  two  advantages  spoken  of  above 
are  once  secured,  capital  becomes  potent  and  bene- 
ficial just  in  proportion  as  it  is  distributed.  By  such 
distribution,  it  comes  closer  to  labor  and  natural 
advantages.  It  makes  use  of  various  powers ;  it 
defends  itself  better  in  emergencies;  it  adapts  itself 
more  shrewdly  to  peculiarities  of  circumstance;  it 
has  a  keener  intelligence  of  the  public  wants  ;  it  com- 
mands a  greater  amount  of  executive  talent;  it 
superintends  its  employes  with  more  accuracy. 

The  man  who  is  to  gain  by  the  work  is  brought 
nearer  to  it.  He  is  well  served,  because  he  serves 
himself. 


UNION    OF    CAPITAL    AND    LABOR.  79 

For  a  long  time,  it  was  a  favorite  belief  with  the 
American  people,  that  corporations  were  the  most 
efficient  agents  of  production,  even  where  the  work 
was  not  so  great  as  to  be  beyond  individual  enter- 
prise. The  older  wisdom  of  the  country  turns  more 
and  more  to  the  smaller  establishments,  which  secure 
full,  interested  personal  supervision  of  labor.  The 
English  economy  has  always  preferred  these,  ex- 
cept where  the  operations  were  beyond  the  reach  of 
ordinary  capital. 

4th.  The  union  of  capital  and  labor  is  most  effect- 
ive where  there  is  the  greatest  freedom  of  industry. 

Whenever  a  population  is  sufficiently  intelligent 
to  understand  its  own  interests,  it  should  be  left  to 
direct  its  own  labors.  Its  industry  should  never  be 
interfered  with  by  government.  In  all  countries 
which  may  be  considered  as  enlightened  or  civilized, 
like  the  European  and  Anglo-American,  the  people 
have  no  occasion  to  look  to  government  for  direc- 
tion as  to  the  business  they  shall  engage  in,  or  the 
manner  in  which  they  shall  conduct  it.  Every 
branch  of  industry,  in  a  normal  state  of  society, 
grows  spontaneously  out  of  the  wants  and  capacities 
of  the  people.  Tillage,  manufactures,  commerce, 
fisheries,  spring  up  in  the  places  to  which  they  are 
best  adapted. 

But  our  immediate  topic  relates,  not  to  acts  of 
government,  based  on  a  distinct  purpose  to  change 
the  general  course  of  national  industry, — which  will 
be  more  appropriately  discussed  elsewhere, — but 
rather  to  those  which  impose  minor  restrictions ; 
directing  the  modes  of  labor,  moulding  the  forms 
of  capital,  and  prescribing  the  conditions  of  their 


80  PRODUCTION. 

union.  All  limitations  of  the  rights  and  powers  of 
capital  or  labor,  not  required  by  the  public  morality 
or  security,  are  useless  and  mischievous. 


CHAPTER    VIII. 

ECONOMIC    CULTURE. 

WE  shall  best  define  the  field  of  this  agency  by  dis- 
cussing one  of  the  most  severely  contested  questions 
of  political  economy,  viz.: 

What  is  the  distinction  between  productive  and 
unproductive  labor? 

The  form  of  this  question  is  unfortunate,  and  has 
caused  the  greater  part  of  the  confusion  prevailing 
on  the  subject.  In  itself,  it  is  of  slight  importance ; 
but,  in  the  course  of  the  discussion,  a  very  grave 
matter  has  become  involved  with  it,  helping  the 
understanding  of  neither. 

Dr.  Adam  Smith  insisted  strongly  on  the  distinc- 
tion between  productive  and  unproductive  laborers. 
In  the  former  class  he  embraced  all  those  who  pro- 
duce material  objects,  which  are  generally  admitted 
to  be  of  use  and  benefit  to  mankind.  Such,  clearly, 
are  farmers,  mechanics,  and  merchants,  in  the  gen- 
eral application  of  their  industry.  Of  unproductive 
laborers,  he  says,  "  In  this  class  must  be  ranked  some 
of  the  greatest  and  most  important,  and  some  of  the 
most  frivolous  professions,  —  churchmen,  lawj^ers, 
physicians,  men  of  letters  of  all  kinds,  players,  buf- 
foons, musicians,  opera-singers,  opera-dancers,  etc." 


ECONOMIC    CULTURE.  81 

This  somewhat  extended  list  by  Dr.  Smith  has  suf- 
fered curtailment  by  almost  all  writers  since.  .The 
distinction  between  physical  and  mental  labor,  be- 
tween direct  and  indirect  agency  in  production,  could 
not  long  be  permitted  to  remain  as  founding  a  dis- 
tinction between  productive  and  unproductive  labor. 
It  is  clear  that  the  physician  who  preserves  the  life 
and  strength  of  the  workman  on  the  farm  or  in  the 
shop  is  equally  productive  with  him ;  and  that  the 
lawyer  by  whom  transfers  of  property  are  effected, 
and  personal  safety  secured,  is  equally  productive 
with  the  owner  or  the  overseer. 

One  occupation  after  another,  "  important  or  friv- 
olous," was  withdrawn  from  the  unproductive  class, 
as  prejudices  disappeared  in  the  light  of  a  better 
philosophy,  and  as  the  part  of  each  in  the  great 
economy  became  manifest;  so  that  now  little  is  left 
of  that  sweeping  condemnation  of  unproductiveness 
passed  by  the  father  of  the  science  upon  the  learned 
and  artistic  professions.  Yet  there  is  a  residuum, 
which  it  is  our  purpose  to  notice. 

All  labor,  in  the  economic  sense,  is  productive. 
The  only  office  of  labor  is  production. 

Labor  is  defined  as  the  efforts  of  man  directed  to 
the  satisfaction  of  his  desires.  Every  effort  that  is 
not  so  directed  is  thrown  away.  It  is  wasted 
power,  not  labor.  If  I  spend  a  twelvemonth  in  the 
invention  of  a  machine,  which,  when  completed,  is 
of  no  sort  of  use  to  any  one,  and  for  which  I  can 
get  nothing,  my  exertions  have  been  unproductive. 
I  have  worked  enough  for  a  reward;  but,  as  it 
proved,  my  work  was  not  directed  to  the  satisfaction 
of  human  desires. 


82  PRODUCTION. 

THE  FIELD  OF  ECONOMIC  CULTURE. 

But  it  may  be  asked,  Does  it  make  no  difference 
i.o  the  community  what  objects  of  labor  are  selected, 
and  by  what  means  these  objects  are  attained  I  -Ger- 
tainly;  and,  in  this  inquiry,  we  reach  the  field  of 
economic  culture,  which  is  that  education  of  the  de- 
sires, that  instruction  of  efforts,  and  that  use  of  sat- 
isfactions, which  will  unite  to  bring  out  desires, 
efforts,  and  satisfactions  in  ever-increasing  circles  of 
industry.  Here  arise,  properly,  all  the  important 
questions  which  were  formerly  discussed  under  the 
head  of  productive  or  unproductive  labor. 

Now  it  can  be  asked  with  effect,  whether  the  opera- 
dancer,  the  physician,  and  the  churchman  are  useful ; 
whether  they  expand  the  desires,  instruct  the  efforts, 
and  dispose  the  satisfactions  of  men  to  a  constantly 
enlarging  industry. 

Let  us  inquire  closely.  It  will  be  readily  granted 
that  these  and  other  similar  classes  may  have  influ- 
ence upon,  or  power  in,  production  in  two  forms, 
either  primary  or  secondary. 

Primary,  where  a  direct  part  is  taken,  an  active 
agency  maintained,  in  the  creation  of  values. 

Secondary,  when  an  effect  *is  produced,  which,  by 
modifying  human  capacities  or  desires,  however  in- 
directly and  in  whatever  degree,  brings  about  ulti- 
mately a  greater  creation  of  values. 

For  example :  that  great  class  which,  in  various 
offices,  maintains  civil  justice  and  order,  has  indis- 
putably a  primary  influence  or  power  by  rendering 
possible  the  present  creation  of  values,  and  by  watch- 


THE  FIELD  OF  ECONOMIC  CULTURE.       83 

ing  over  their  keeping  and  transfer.  Government 
and  the  law  are  great  agencies  of  production.  With- 
out them,  however  desirous  people  might  be  of 
wealth,  and  however  capable  of  effort,  little  or 
nothing  could  be  produced.  Robbery  and  violence 
would  scatter  and  destroy  what  already  exists,  and 
a  universal  waste  would  speedily  follow.  But  they 
have,  also,  a  secondary  power  or  influence ;  for  it  is 
found  that  the  maintenance  of  peace  and  property 
rights  awakens  new  and  increasing  desires,  widens 
the  horizon  of  ambition,  and  stimulates  everywhere 
to  honest  industry.  Civil  security  is  an  education 
for  wealth,  an  economic  culture. 

Then  that  great  class  which  teaches  has  both  a 
primary  and  a  secondary  power  and  influence, — 
primary,  in  that  it  gives  instruction  to  present  labor, 
as  it  is  struggling  to-day  with  the  difficulties  of  pro- 
duction ;  explains  chemical  and  mechanical  laws; 
and  establishes  the  alphabet,  the  written  letter,  elec- 
tric communication,  the  rules  of  book-keeping,  and 
the  art  of  navigation  :  secondary,  in  that  the  prog- 
ress of  mind  brings  it  infallibly  to  higher  stations  of 
aspiration  and  activity. 

The  work  of  the  physician  is  almost  entirely  of 
the  primary  character.  He  saves  the  lives  of  pro- 
ducers, and  preserves  their  strength  to  labor.  This 
secondary  power  or  influence  of  his  profession,  if 
such  exists,  is  distant  and  trivial. 

On  the  other  hand,  we  shall  add  nothing  to  the 
dignity  of  the  churchman  or  priest  or  minister,  by 
attributing  to  him  any  direct  power  in  production. 
Yet  his  part  may  be  no  less  important  because  sec- 
ondary. The  influence  of  religion  is  hardly  less 


84  PRODUCTION. 

marked  than  that  of  race,  in  the  creation  of  values. 
If  its  influence  tend  to  improve  the  morals,  and  thus 
aid  in  the  preservation  of  public  order;  to  elevato 
the  mind,  and  thus  give  it  nobler  and  higher  aspira. 
tions,  and  a  better  appreciation  of  the  right  uses  of 
wealth, — it  must  be  a  great  auxiliary  to  its  produc- 
tion. 

That  class  of  agencies  which  we  have  desig- 
nated as  primary  comes  within  the  view  of  pro- 
duction. The  class  of  secondary  agencies  belongs 
to  the  department  of  consumption,  which  treats  of 
the  use  of  wealth,  so  that  it  may  bring  forth  more 
wealth. 

Here,  in  economic  culture,  is  the  point  at  which 
production,  passing  by  exchange  and  distribution, 
comes  into  relation  with  consumption.  In  pure 
theory,  production  and  consumption  complete  the 
economic  good,  which  is  reproduction.  The  harvest 
which  is  gained  in  production  is  sown  or  wasted,  as 
the  case  may  be,  in  consumption,  to  reappear  in  a 
more  abounding  harvest,  or  in  barrenness,  in  repro- 
duction. Practically,  however,  we  have  to  introduce 
the  laws  of  exchange  and  distribution,  as  the  agen- 
cies by  which  production  is  finished,  and  consump- 
tion made  possible. 

We  have  used  metaphors  drawn  from  the  chem- 
istry of  agriculture  to  express  the  significance  of 
economic  culture.  To  illustrate  from  mechanics, 
we  should  say  that  it  treats  of  the  reaction  of  labor. 
No  force  can  react  except  from  something  external. 
Labor  is  a  force  directed  to  an  object.  The  energy 
with  which  it  is  to  move  in  a  new  direction  will  de- 
pend on  the  temper  and  shape  of  the  body  on  which 


THE   FIELD    OP   ECONOMIC   CULTURE.  85 

it  impinges.  Keproduction,  then,  is  the  rebound  of 
production  from  consumption. 

If  labor  expends  itself  on  objects  that  do  not  stim- 
ulate to  further  efforts  or  serve  as  instruments  to 
farther  production,  but  rather  debauch  the  energies 
and  corrupt  the  faculties,  it  is  evident  that  repro- 
duction will  be  lessened  and  debased,  and  the  whole 
course  of  industry  be  downward. 

If,  on  the  contrary,  labor  expends  itself  on  objects 
that  present  fresh  and  urgent  desires,  and  excite  to 
renewed  activities,  it  is  evident  that  the  course  of 
production  is  upward;  and  the  people  will  rise 
economically,  with  a  rapidity  and  force,  such  as 
signalized  the  career,  in  the  fourteenth  century,  of 
Florence ;  in  the  seventeenth,  of  Holland ;  in  the 
eighteenth,  of  England;  in  the  nineteenth,  of  the 
United  States. 


BOOK    III. 

IE  IH:  o  :HI  A.  nsr  a- IE. 


PART    FIRST.-TRADE. 
CHAPTER  I. 

THE    PRINCIPLES    OF   TRADE. 

EXCHANGE  has  its  origin  from  the  division  of 
labor;  and  the  further  that  division  is  carried,  the 
greater  extension  is  given  to  exchange.  If  each 
in jui  supplied  his  own  wants  by  his  own  work,  trade 
could  not  exist.  But,  so  far  from  this  being  the 
rule  of  industrial  society,  the  article  to  which  a  man 
devotes  all  his  labor  may  be  such  as  he  never  used, 
perhaps  never  saw  used. 

Exchange  is  that  agency  which  brings  a  man  what 
he  wants  for  what  he  does  not  want,  which  fur- 
nishes gratification  for  his  desires  out  of  objects  which 
are  adapted  to  gratify  few  or  none  of  his  desires. 

.As  the  division  of  labor  begins  in  the  most  savage 
state,  so  exchange  is  known  there.  One  goes  into 
the  woods  for  venison ;  another,  to  the  river  for 
iish.  At  night,  they  divide.  Half  the  fish  is  given 
for  half  the  meat.  Perhaps  other  parties  are  intro- 
duced. Instead  of  exchanging  the  whole  of  their 
fish  or  venison,  each  of  the  two  gives  a  portion  for 
a  trinket,  and  another  portion  to  the  medicine  man 
(86) 


THE    PRINCIPLES    OF    TRADE.  87 

for  herbs  which  he  alone  knows  how  to  collect.  We 
have  here  brought  in  exchange,  not  only  in  regard 
to  the  plain  necessaries  of  life,  but  to  the  services  of 
science  and  to  luxuries.  Yet  all  this  occurs  in  the 
daily  life  of  the  savage.  Only  one  went  for  venison  ; 
four  have  venison  now.  Only  one  went  fishing; 
four  have  fish  to  eat.  The  hunter  and  the  fisher- 
man have  trinkets  and  medicine  they  know  not  how 
to  get. 

"Trade"  is  a  technical  term  for  the  sum  of  all 
actual  exchanges.  It  is  exchange  realized. 

There  are  several  kinds  of  trade  : 

1st.  Domestic  or  home  trade,  which  includes  what 
is  commonly  known  as  the  coasting  trade. 

2d.  Carrying  trade,  in  which  the  carriers  have  no 
interest  in  the  commodities  beyond  their  transpor- 
tation. 

3d.  Foreign  or  international  trade,  to  which  the 
word  "  commerce"  is  generally  applied. 

These  kinds  of  trade  are  subdivided  into  the 
wholesale,  retail,  and  jobbing  trades ;  and  special- 
ized indefinitely  as  the  iron,  cotton,  shoe  trades,  etc. 

Whence  does  trade  arise  ? 

From  the  desire  which  individuals  and  commu- 
nities have  for  each  other's  products.  It  is  evident 
that  this  is  essential  to  trade;  since,  if  peoples  pro- 
duced by  themselves  all  they  wished  for,  there  could, 
as  we  have  said,  be  no  occasion  for  an  exchange. 

To  what  extent  can  trade  be  carried  ? 

To  the  extent  of  the  surplus  production  of  each 
individual  or  nation.  Given  the  aggregate  surplus 
products  of  all  the  people  of  a  country  severally,  and 
we  have  the  amount  of  its  entire  trade.  Given  the 


88  EXCHANGE. 

aggregate  surplus  products  of  the  people  collectively, 
and  we  have  the  amount  of  its  foreign  trade. 

Illustration:  Suppose  a  community  of  one  hun- 
dred individuals,  each  producing  three  hundred 
dollars'  worth  a  year, — aggregate  revenue,  thirty 
thousand  dollars.  If  each  person  desires  to  consume 
only  one  hundred  dollars'  worth  of  his  own  articles, 
he  will  have  left  for  trade  two  hundred  dollars' 
worth, — aggregate  in  the  community,  twenty  thou- 
sand dollars.  But  if,  after  exchanging  around  with 
his  neighbors,  it  is  found  that  each  member  of  the 
community  has  one  hundred  dollars  which  he  does 
riot  wish  to  part  with  for  anything  he  can  get  at 
home,  we  have  the  aggregate  surplus  available  for 
foreign  trade,  ten  thousand  dollars. 

It  will,  of  course,  be  remarked  that  the  amount 
of  surplus,  in  particular  countries,  will  vary  with 
the  character  of  their  products.  We  can  suppose 
an  entire  people  engaged  in  industry,  of  which  they 
make  no  use  themselves.  In  such  a  case,  their 
trade  would  be  to  the  amount  of  their  whole  pro- 
duction and  their  whole  consumption.  Li  fact,  this 
condition  of  things  is  never  realized.  The  nearer  it 
is  approached,  the  more  general  the  trade.  The 
more  vital  and  primitive  the  articles  produced,  the 
greater  will  be  the  share  consumed  at  home.  Ohio 
has  no  such  trade,  proportionately,  as  Rhode  Island  ; 
not  necessarily  because  the  latter  produces  more, 
but  that  she  produces  more  of  what  she  does  not 
want.  The  people  of  Birmingham  consume  but  an 
infinitesimal  part  of  the  articles  they  produce. 

We  have  here  the  principle  that  the  wealth  of  a 
people  is  not  determined  by  the  extent  of  its  trade. 


THE    PRINCIPLES    OF   TRADE.  89 

What  persons  or  communities  will  trade  most 
largely  with  each  other  ? 

Other  things  equal,  those  whose  productions  differ 
most. 

Two  tailors  will  not  traffic  much  together.  Both 
will  trade  with  the  shoemaker  and  hatter.  Indiana 
will  not  trade  extensively  with  Illinois ;  but  both 
will  trade  largely  with  Louisiana  and  Massachu- 
setts. Russia  and  Sweden  will  make  very  few  ex- 
changes, because  their  productions  are  so  much 
alike.  Both  will  deal  largely  with  the  West  Indies. 

What  determines  the  character  and  kind  of  pro- 
ducts each  country  will  afford  ? 

1st.  Soil  and  physical  conformation.  One  will  be 
a  wheat- raising,  another  a  wool-growing  country. 
Each  will  spontaneously  turn  its  industry  in  that 
direction  where  it  will  produce  the  greatest  values 
with  the  least  outlay  of  labor  and  capital. 

2d.  Climate.  From  the  Arctic  regions  to  the 
tropics,  from  Siberia  to  Hindostan,  is  infinite 
variety,  both  of  heat  and  moisture.  Some  coun- 
tries are  deluged  with  twenty-five  feet  of  water  in  a 
season  ;  others  parch  the  year  round  with  ten  inches. 
Some  are  locked  with  frost  eight  months  in  twelve ; 
others  are  open  the  year  round. 

3d.  Social  condition.  Take,  for  examples,  Eng- 
land and  Brazil,— one  distinguished  for  the  high 
moral  and  mental  endowments  of  its  citizens ;  the 
other  having  a  heterogeneous  population,  in  a  poor 
and  semi-barbarous  condition.  The  latter  would, 
plainly,  seek  to  enrich  themselves  from  the  sponta- 
neous yield  of  the  soil,  from  the  wild  wealth  of  the 
pampas  and  the  forests,  from  the  precious  ores  and 
8* 


90  EXCI1ANGE. 

stones  along  their  streams  and  in  natural  cavea, 
rather  than  till  the  ground  to  the  fertility  of  a  gar- 
den, sink  shafts  into  the  solid  rock,  cast  up  high- 
ways upon  the  rivers,  and  work  iron  into  the  anchor 
and  lancet. 

4th.  Difference  of  race. 

This  is  additional  to  differences  of  social  condition, 
and  looks  to  those  peculiarities  of  industrial  charac- 
ter in  the  races  of  man,  which  are  no  less  distin- 
guishable than  their  peculiarities  of  stature,  com- 
plexion, and  feature.  These  do  not  affect  the 
degree  of  production  only,  as  greater  or  less,  but 
multiply  the  fashions,  and  complete  the  varieties  of 
wealth. 

All  the  causes  here  enumerated  conspire  to  give  a 
great  extent  and  activity  to  trade.  It  is  in  the  com- 
merce of  the  world  that  we  have  illustrated — 

THE   TERRITORIAL    DIVISION    OF   LABOR. 

The  Chinese  raise  tea  and  silk.  This  is  their 
specialty,  the  form  of  industry  to  them  most  profit- 
able. The  Cubans  produce  sugar;  and  the  Sicilians, 
oranges,  for  the  same  reason.  England  excels  all 
nations  in  useful  manufactures;  France,  in  those  of 
taste  and  beauty;  while  the  United  States  has  its 
great  industrial  power  in  cotton  and  the  cereals. 

Under  the  operation  of  natural  laws,  each  country 
employs  and  disposes  of  its  labor,  without  any  arbi- 
trary enactments,  in  just  the  way  most  congenial 
and  profitable ;  in  other  words,  in  that  way  which 
develops  its  greatest  industrial  power,  and  secures 
the  largest  possible  production. 


THE    PRINCIPLES    OF    TRADE  91 

Suppose,  on  the  contrary,  that  we  of  the  United 
States  should  determine  to  raise  our  own  oranges. 
We  could  do  so,  and  create  a  supply  equal  to  the 
demand.  The  cost  of  one  orange  would  probably 
be  equal  to  the  cost  of  raising  a  bushel  of  wheat, 
which  would  procure  for  us  abroad  one  hundred 
oranges.  The  loss  would  be  equal  to  ninety-nine 
out  of  every  hundred  oranges.  We  should  force  a 
certain  part  of  the  labor  engaged  in  other  pursuits 
into  the  business  of  raising  oranges.  The  supply 
would  be  fully  equal  to  the  demand;  for,  at  the 
rate  of  a  bushel  of  wheat  for  each  orange,  few 
oranges  would  be  wanted.  The  people  would  lose 
the  enjoyment  of  ninety-nine  out  of  every  hundred 
oranges  they  would  otherwise  consume,  and  could 
just  as  well  have,  if  allowed  to  pay  for  them  in 
wheat. 

From  these  general  considerations  of  trade,  we 
deduce  the  following  principles  : 

1st.  The  individuals  must  produce  a  surplus  of 
their  owrn  commodities  to  have  an  opportunity  to 
trade,  and  must  trade  to  make  it  an  object  to  pro- 
duce a  surplus.  Wants  create  wealth,  and  wealth 
creates  wants. 

2d.  That  every  nation  is  interested  in  the  produc- 
tion of  every  other  nation.  Anything  which  im- 
pedes the  production  of  any  individual  or  commu- 
nity injures  the  trade  of  the  world.  The  great 
Rebellion  in  the  United  States  was  felt,  it  may 
almost  be  said,  by  every  human  being  on  the  globe. 
Not  a  consumer  of  cotton,  high  or  low,  civilized  or 
savage,  but  suffered  in  consequence. 

3d.  That  this  mutual  interest  exists  between  any 


92  EXCHANGE. 

two  nations,  whether  they  have  direct  commercial 
intercourse  or  not.  For  example :  there  may  be  a 
German  principality  that  purchases  nothing  of  the 
United  States,  yet  it  may  purchase  largely  of  the 
cotton  yarn  of  England.  That  causes  a  demand  for 
American  cotton  ;  that  benefits  the  Southern  States  ; 
that,  in  turn,  helps  the  trade  of  the  North;  and 
that,  again,  the  producers  of  the  West,  on  whom  the 
North  depends  for  agricultural  supplies. 

4th.  Since,  by  the.  laws  of  trade,  those  countries 
which  lie  most  remote  from  each  other,  and  are 
most  unlike  in  soil,  climate,  civilization,  and  ethnical 
characteristics,  are  most  nearly  united  by  commerce, 
it  is  shown,  that,  by  this  territorial  division  of  labor, 
the  most  extended  production  and  the  most  be- 
neficent distribution  of  all  the  commodities  of  the 
earth  are  secured ;  and  that,  if  any  nation  creates  an 
article  of  peculiar  desirableness,  it  is  placed  within 
the  reach  of  all.  Every  invention  or  improvement 
becomes,  in  this  way,  the  common  property  of  man- 
kind. 

5th.  That  commerce  harmonizes  all  differences  in 
the  industry  of  the  world. 

"  All  Nature's  difference  makes  all  Nature's  peace." 

"  A  commercial  nation,"  says  Sir  James  Mackin- 
tosh, "  has  the  same  interest  in  the  wealth  of  her 
neighbors  that  a  tradesman  has  in  the  wealth  of  his 
customers.  .  .  .  Not  an  acre  of  land  has  been 
brought  into  cultivation  in  the  wilds  of  Siberia,  or 
on  the  shores  of  the  Mississippi,  .which  has  not 
widened  the  market  for  English  industry."  And 
we  may  add  for  American  industry  as  well. 


OBSTRUCTIONS    TO    TRADE.  93 

6th.  That  commerce  diminishes  the  number  of 
wars,  and  shortens  their  duration. 

The  whole  interest  of  commerce  is  the  inalien- 
able ally  of  peace.  It  has  not  been  found  sufficient, 
thus  far,  to  prevent  all  wars.  But  it  enters  into 
negotiations,  tempers  grievances,  and  delays  vio- 
lence. A  .  o 


CHAPTER  II. 

OBSTRUCTIONS   TO    TRADE. 

THESE  are  of  three  kinds : 

First,  physical,  which  are  natural ;  secondly r,  legal, 
which  are  conventional ;  thirdly r,  social,  which  are 
incidental. 

These  we  propose  to  consider  seriatim,  so  far  as 
practicable. 

1st.  PHYSICAL  OBSTACLES  are  such  as  Nature  inter- 
poses. They  may  all  be  expressed  by  the  term 
location;  because  this  includes  soil,  climate,  and  all 
other  natural  conditions.  Circumstances,  as  con- 
nected with  the  location  of  different  communities, 
may  render  trade  between  them  very  difficult,  how- 
ever much  they  may  desire  commercial  intercourse. 

Nations,  like  individuals,  exchange  products  for 
one  of  two  reasons  : 

1st.  That  one  produces  what  the  other  cannot;  or, 

2d.  That  one  produces  more  cheaply  than  the 
other. 


94  EXCHANGE. 

In  either  case,  if  they  desire  each  other's  com- 
modities,  it  is  for  their  mutual  interest  to  make  an 
exchange.  It  would,  therefore,  seem  to  follow  that 
all  obstructions  to  the  exchange  of  commodities  between  any 
two  countries  desiring  each  other's  products  must  injuri- 
ously affect  the  interests  of  both. 

It  is  our  present  purpose  to  inquire  as  to  the  truth 
of  this  proposition,  which,  after  the  discussions  of 
half  a  century,  is  still  a  matter  of  grave  dispute ;  and 
the  legislation  of  nations  has  been,  and  to  a  large  ex- 
tent still  is,  in  the  direction  of  interposing,  rather 
than  removing,  obstacles  to  commercial  intercourse. 

To  aid  our  inquiry,  we  shall  make  use  of  an  illus- 
tration that  we  think  will  show,  in  a  clear  manner, 
and  in  a  few  words,  the  effects  of  physical  obstruc- 
tions. 

Two  communities,  dwelling  contiguous  to  each 
other,  are  separated  by  a  lofty  chain  of  mountains, 
which  renders  transportation  between  them  so  diffi- 
cult as  nearly  to  preclude  all  intercourse.  On  one 
side  the  mountain,  the  soil  is  so  admirably  adapted  to 
cereals,  that  wheat  (and  other  grains  in  proportion) 
can  be  produced  at  the  rate  of  one  bushel  for  a  day's 
labor;  while  fuel  is  so  difficult  to  be  obtained,  that 
six  days'  labor  are  required  to  produce  one  ton  of  coal. 

On  the  opposite  side  of  the  mountain  range,  so 
little  is  the  soil  adapted  to  the  culture  of  grain,  that 
three  days'  labor  are  required  to  produce  a  single 
bushel  of  wheat ;  while  the  facilities  for  mining  coal 
are  so  great,  that  one  day's  labor  will  produce  a  ton. 
Under  such  circumstances,  it  would  evidently  be 
quite  advantageous  to  both  countries  to  exchange 
products,  if  there  were  no  obstacles  to  prevent  their 


OBSTRUCTIONS    TO    TRADE.  95 

doing  so.  Owing,  however,  to  the  resistance  which 
the  supposed  mountain  interposesrthe  transportation 
of  a  bushel  of  wheat  's  equivalent  to  two  days'  labor; 
so  that  the  wheat  would  cost  three  days'  labor  per 
bushel  when  brought  to  the  coal  country,  and  for 
that  amount  of  labor,  the  inhabitants  could  produce 
it  themselves.  So  of  coal.  To  transport  a  ton  which 
cost  but  one  day's  labor  at  the  mines  would  require 
the  labor  of  five  days;  and  therefore  the  people  in 
the  grain  country,  who  can  produce  it  by  six  days' 
labor,  would  gain  nothing  by  getting  it  from  abroad. 
For  these  reasons  there  would  be  no  trade  or  ex- 
change of  products  so  far  as  those  articles  were  con- 
cerned, except  in  case  of  some  accident,  as  the 
failure  of  a  crop,  or  an  unexpected  obstruction  to 
the  process  of  mining,  by  which  the  cost  of  the  sup- 
posed commodities  should  be  enhanced.  Virtually, 
there  would  be  no  profitable  trade  between  the  two 
communities,  although  in  one  coal  was  six  times  as 
dear,  and  in  the  other  wheat  was  three  times  as  dear, 
as  in  the  neighboring  country. 

If,  however,  we  now  suppose  a  railway  to  be  made 
which  reduces  the  transportation  of  a  bushel  of  wheat 
to  one  day's  labor,  and  the  freight  of  a  ton  of  coal 
to  three  days,  we  shall  have  conditions  under  which 
an  advantageous  trade  will  be  sure  to  spring  up, 
since  the  wheat-grower  of  the  grain  country  can  now 
get  a  ton  of  coal  for  the  labor  of  four  days,  thus 
saving  two  days  on  each  ton,  equal  to  3-iJ-  per  cent.; 
and  the  coal  miner  can  get  a  bushel  of  wheat  for  two 
days'  labor  instead  of  three:  thus  saving,  as  far  as 
his  consumption  of  wheat  is  concerned,  one- third  or 
33J  per  cent,  of  his  labor. 


96  EXCHANGE. 

If  we  further  suppose  that  the  consumption  of  coal 
in  the  wheat-growing  country  is  five  hundred  thou- 
sand tons  per  annum,  two  days'  labor  being  saved  on 
each  ton,  the  total  saving  will  be  one  million  days' 
labor  per  annum.  If  the  consumption  of  wheat  in  the 
mining  country  be  two  million  bushels  on  each  of 
which  one  day's  labor  is  saved,  the  total  saving  in 
the  two  countries  will  be  three  milion  days'  labor 
per  annum. 

What  we  find  true  here,  in  principle,  must  be  true 
in  all  similar  cases.  Both  parties  gain  largely ;  and 
the  fact  that  the  miners  gain  two  millions  while  the 
wheat-growers  gain  only  one,  is  no  good  reason  why 
the  latter  should  decline  a  trade  that  saves  them  a 
million  a  year.  The  result,  in  this  respect,  is  analo- 
gous to  the  operation  of  the  late  Reciprocity  trade 
between  the  United  States  and  Canada,  which, 
while  highly  advantageous  to  the  former,  was  still 
more  so  to  the  latter. 

We  must  inquire  as  to  the  general  effects  of  these 
increased  facilities  for  trade. 

PRODUCTION  WILL  BE  INCREASED. 

First.  As  each  of  the  supposed  countries  will  now 
have  an  equal  quantity  of  coal  and  wheat  for  less 
labor  than  before  the  obstacles  were  removed,  the 
large  amount  of  labor  so  released  will  of  course  be 
employed  in  the  production  of  new  commodities, 
and  industry  will  flow  into  new  channels.  This  will 
be  done,  not  from  compulsion,  but  from  choice,  and 
therefore  will  take  the  most  profitable  directions. 
The  labor  of  each  community,  in  the  case  supposed, 


OBSTRUCTIONS    TO    TRADE.  97 

will  act  under  new  and  greatly  improved  conditions, 
because, — 

(a)  In  the  mining  country,  the  expense  of  support- 
ing the  laborer  in  consequence  of  the  diminished 
price  of  wheat,  will  so  reduce  the  cost  of  producing 
coal,  that,  other  things  equal,  the  miner  will  obtain 
a  larger  profit,  and  the  laborer  higher  wages.    More 
commodities  being  produced,  there  will  be  a  larger 
amount  to  be  divided  between  the  parties  producing 
it,  of  which  the  laborer  will  receive  a  larger  share 
than  before. 

(b)  In  the  agricultural  community,  on  the  other 
hand,  the  large  reduction  in  the  price  of  fuel  will  not 
only  liberate  a  large  amount  of  labor  and  reduce  the 
expenses  of  living,  but  afford  facilities  for  the  use 
of  steam  power  in  manufactures  and  the  mechanic 
arts,  which  will  now  be  introduced  as  fast  and  as  far 
as  profitable.     Thus  the  industry  of  both  countries 
becomes  more  and  more  diversified.     Wants  in  cer- 
tain directions,being  supplied  with  less  labor,  more 
of  the  general  industry  may  be  employed  in  furnish- 
ing other  objects  of  desire. 

Do  we  not  here  discover  the  principle  upon  which 
the  occupations  of  a  people  become  diversified,  and 
the  way  in  which  this  is  brought  about  in  an  eco- 
nomical manner  under  the  unobstructed  operation 
of  the  laws  of  trade,  without  the  smallest  sacrifice  on 
the  part  of  any  class  or  interest  ?  It  is  the  sponta- 
neous expansion  of  a  nation's  untrammelled  industry. 

HOW   TRADE    ENRICHES   NATIONS. 

Again,  we  here  also  ascertain  the  principle  upon 
which  trade  enriches  nations.  Each  party  obtains 

9 


98  EXCHANGE. 

more  by  exchanging  than  by  producing,  because 
each  produces  that  for  which  it  has  the  most  com- 
plete adaptation  #nd  the  greatest  facilities.  Each 
nation,  in  fact,  works  for  the  other  at  a  more  profit- 
able rate  than  it  could  work  directly  for  itself.  With 
uninterrupted  trade  this  must  be  true  of  all  coun- 
tries, at  all  times,  and  under  all  circumstances. 

Furthermore,  can  it  make  any  difference  to  the 
wealth  of  nations  whether  the  obstacles  preventing 
their  exchange  of  products  are  those  existing  in 
nature  or  interposed  by  governments  ?  If,  in  the  case 
of  the  two  countries  in  question,  after  an  interchange 
of  products  has  been  established  by  the  construction 
of  a  railroad,  the  gorernment  of  one  or  both  should 
impose  such  heavy  tolls  upon  transportation  as  to 
raise  its  cost  as  high  us  before  the  railroad  was  built, 
would  not  the  effect  upon  trade  and  industry  be  the 
same  as  if  the  railroad  itself  were  destroyed  ? 


CHAPTER   III. 

LEGAL  OBSTRUCTIONS,  OR  GOVERNMENTAL  INTERFER- 
ENCE WITH  THE  GENERAL  INDUSTRY  BY  TARIFF 
DUTIES. 

THESE  may  be  imposed  for  one  or  more  of  four 
reasons : 

1.  To  raise  a  revenue. 

2.  To  encourage  the  growth  or  manufacture  of 
certain  commodities  at  home. 


PROTECTION.  99 

3.  To  support  or  maintain  existing  forms  of  pro- 
duction. 

4.  To  secure  commercial  independence  by  isola- 
tion, or  independence  of  commerce. 

1st  To  raise  a  revenue.  So  far  as  this  is  only  a  con- 
venient way  in  which  the  State  can  collect  a  certain 
sum  of  money  it  must  have,'it  is  but  a  mode  of  taxa- 
tion, with  which  we  have  no  present  concern.  So 
far  as  it  affects  the  industry  of  the  country  by  chang- 
ing its  direction  to  the  production  of  articles  that 
cannot  be  raised  or  made  at  a  profit  except  by  being 
raised  above  their  natural  price,  it  becomes  an  ob- 
struction to  trade,  or  what  is  called  PROTECTION. 

We  have  not  thus  far  used  the  term  protection, 
because  in  this  connection  it  has  a  technical  mean- 
ing, designating  a  system  of  restrictive  measures  on 
the  part  of  the  government  intended  to  force  the 
industry  of  a  people  from  its  natural  channels ;  and 
we  now  use  the  term  under  protest. 

Protection  has  been  defined  to  be,  "  the  establish- 
ment of  such  duties  on  foreign  goods  as  will  protect 
or  cherish  domestic  industry." 

We  accept  this  as  a  correct  definition  of  what  the 
protective  system  claims  to  be  ;  namely,  an  aid  to  the 
general  industry  of  a  nation  ;  not  to  a  part,  but  to 
the  whole  ;  not  of  one  class,  but  of  all  classes.  And 
this  is  the  particular  point  of  our  present  inquiry.. 
This  is  the  field  in  which  protection  joins  battle  of 
choice  with  freedom  of  industry.  In  all  the  other  par- 
ticular reasons  its  argument  is,  as  we  shall  see,  linked 
with  some  real  or  fancied  necessity;  but  here  protec- 
tion takes  ground  freely  and  fairly,  and  proposes 
to  do  this  by  tariffs.  Of  these  we  will  briefly  speak. 


100  EXCHANGE. 


TARIFFS. 

A  tariff  is  "  properly  a  list  or  table  of  goods  with 
the  duties  or  customs  to  be  paid  upon  the  same." — 
Webster.  From  their  genera]  characteristics,  tariffs 
may  be  divided  into  two  kinds :  namely,  those  im- 
posed solely  for  revenue,  and  those  laid  intentionally 
in  such  a  manner  as  to  restrict  the  importation  of 
certain  articles  with  a  view  to  cause  their  manufac- 
ture or  production  at  home.  The  first  is  properly 
called  a  revenue  or  free-trade  tariff,  since  it  is  not 
intended  to,  nor  does  it  in  fact,  diminish  trade. 

It  may  be  objected  to  this  last  statement  that  any 
duties,  since  they  must  increase  the  cost  of  com- 
modities to  the  consumers,  must  necessarily  dimin- 
ish consumption.  Is  this  true? 

Suppose  the  amount  of  one  hundred  millions  must 
be  raised  to  meet  the  wants  of  government,  and  that 
this  is  done  by  direct  taxation.  Then  those  who  pay 
the  taxes  will  have  one  hundred  millions  less  of 
means  wherewith  to  purchase  commodities,  and 
their  trade  must  be  reduced  to  that  extent.  Sup- 
pose the  same  amount  of  one  hundred  millions  be 
raised  by  tariff,  then  the  cost  of  the  commodities 
taxed  will  be  raised  one  hundred  millions,  and  con- 
sumers must  purchase  one  hundred  millions  less 
than  they  otherwise  might.  In  either  case,  the 
ability  of  the  tax-payers  to  purchase  will  be  reduced 
one  hundred  millions,  and  the  trade  of  the  country 
would  be  as  little  affected  in  one  case  as  the  other. 

So  far  as  mere  trade,  therefore,  is  concerned,  it 
matters  but  little  whether  the  supposed  one  hun- 
dred millions  be  raised  by  a  revenue  tariff  or  direct 


PROTECTION.  101 

taxation.  The  result  of  this  mode  of  taxation,  it 
may  be  observed,  is  not  to  interrupt  the  industry 
of  the  country,  like  restrictions  upon  trade,  but 
only  to  lessen  the  satisfactions  of  the  tax-payers. 

The  protective  system,  on  the  other  hand,  is  de- 
signed to  diminish  foreign  imports,  and  to  direct 
the  industry  of  the  country  into  new  channels,  into 
the  production  of  articles  which  will  not  pay  a  profit 
unless  raised  in  price;  and  since  they  can  only  be 
raised  in  price,  by  the  additional  cost,  or  amount  of 
labor  required  to  produce  them,  the  general  production 
must  be  lessened  to  the  extent  of  the  extra  labor  re- 
quired to  furnish  the  protected  articles. 

Since  the  trade  of  a  people  depends  upon  produc- 
tion, it  is  influenced  by  taxation  only  so  far  as  it  di- 
minishes their  ability  to  produce.  A  strictly  revenue 
tariff,  therefore,  like  any  other  form  of  taxation  (un- 
less so  excessive  as  to  encroach  upon  production), 
has  no  disturbing  influence  upon  trade,  and  in  no 
way  conflicts  with  the  largest  development  of  a 
nation's  industry  and  the  widest  extension  of  its 
commerce.  It  preserves  perfect  freedom  of  exchange 
with  every  part  of  the  earth. 

Economically,  it  will  ever  remain  true,  that  the 
government  is  best  which  governs  least.  The  wants 
of  a  people  are  the  sole  proper,  the  sole  possible, 
motives  for  production.  Nothing  can  be  substituted 
for  them.  Anything  that  seems  to  take  their  place 
is  merely  a  debasement  of  them.  The  interests  of 
producers,  whether  laborers  or  capitalists,  secure, 
better  than  any  other  possible  means,  the  gratification 
of  such  wants.  Their  intelligence  is  always  superior 
on  such  points  to  that  of  any  foreign  body.  These 

9* 


102  EXCHANGE. 

we  believe  to  be  absolute  affirmations  of  universal 
experience,  not  dependent  on  reasoning,  not  conde- 
scending to  argument. 

General  proposition  :  There  is  no  sense  so  subtile 
as  that  with  which  a  man  detects  his  own  wants. 
There  is  no  spur  so  sharp  as  that  which  urges  him 
to  satisfy  them. 

If,  then,  protection  is  founded  on  false  economical 
principles,  we  should  expect  to  find  it  working 
mischief  in  its  application  to  national  industry,  per- 
verting the  desires,  crippling  the  efforts,  and  plun- 
dering the  satisfactions  of  society. 

Since  the  subject  is  of  great  practical  importance 
and  of  great  popular  interest,  we  will  take  an  illus- 
tration at  length  from  the  history  of  American  in- 
dustry, exhibiting  the  principles  thus  far  attained. 

We  choose  the  manufacture  of  iron,  for  six  rea- 
sons: 

1st.  Because  it  may  be  produced  in  great  amount 
in  our  own  country,  and  is  found  in  almost  all  others. 
There  is,  therefore,  nothing  of  the  nature  of  a  mo- 
nopoly about  it. 

2d.  Because  it  enjoys  the  largest  natural  protec- 
tion arising  from  its  weight  and  bulk. 

3d.  Because  it  is  one  of  the  most  simple  of  all 
manufactures. 

4th.  Because  it  has  been  tried  on  a  large  scale, 
affording  material  for  great  inductions,  and  freeing 
the  results  from  any  imputation  of  accident. 

5th.  Because  the  public  attention  has  been  turned 
to  it  for  a  long  time,  and  it  is  better  understood 
than  any  other  we  could  name. 

6th.  Because  a  stronger  argument  can  be  made 


PROTECTION.  103 

in  favor  of  governmental  intervention  in  its  behalf 
than  any  other. 

What  is  the  fact  in  regard  to  the  manufacture  so 
described?  At  present,  iron  cannot  be  so  cheaply 
and  extensively  produced  in  the  United  States  as  to 
exclude  the  foreign  article.  Why  is  this?  We 
answer  negatively : 

1st.  Not  that  we  do  not  know  how  to  make  it. 
Being,  as  has  been  said,  the  most  simple  of  all 
manufactures,  we  have  had,  from  the  earliest  set- 
tlement of  the  colonies,  the  necessary  knowledge, 
and  have  produced  it  from  our  colonial  days. 

2d.  Not  that  we  have  not  sufficient  capital.  No 
branch  of  business  is  more  accessible  than  iron- 
making,  or  requires  less  capital  proportionally. 

Besides,  a  successful  business,  once  started,  creates 
its  own  capital.  Labor  no  more  seeks  assistance 
from  capital,  than  capital  employment  by  labor. 
Every  year  of  profitable  enterprise  affords  a  sur- 
plus, which  can  be  applied  to  the  increase  of  busi- 
ness more  efficiently  than  twice  the  amount  of  raw 
capital,  coming  in  the  lump.  The  daily  or  monthly 
increments  are  applied  with  an  aptness  and  a 
promptness  that  make  them  far  more  useful  than 
wholesale,  occasional  accessions  of  capital  from 
abroad. 

3d.  Not  that  we  have  not  the  best  natural  facili- 
ties for  the  manufacture. 

Five  great  conditions  of  success  are  found  most 
remarkably  in  the  United  States, — (a)  Our  ore  is 
not  only  of  excellent  quality  and  most  abundant, 
but  (6)  is  found  very  generally  on  the  surface  and 
(c)  in  proximity  to  the  best  river  navigation,  and 


104  EXCHANGE. 

almost  always  in  close  juxtaposition  to  (d)  coal  for 
smelting,  and  (e)  limestone  for  flux.  Perhaps  in 
no  other  country  of  the  world  are  these  requisites 
so  fully  secured.  The  absence  of  a  single  one  of 
them  might  be  sufficient  to  destroy  the  prospect 
of  production. 

4th.  Not  that  the  manufacture  here  lacks  good 
natural  advantages.  America  has  been  put  at  a 
great  distance  from  Europe.  The  effects  of  this 
we  have  already  seen.  The  foreign  product  is, 
in  this  case,  charged  with  freight  and  insurance 
for  a  voyage  of  three  thousand  miles. 

Why,  then,  with  all  these  facilities,  do  we  not 
produce  all  our  iron  without  governmental  coer- 
cion ?  There  is  but  one  reason. 

WE  CAN  DO  BETTER.  We  can  obtain  a  part  of 
our  iron  with  less  labor  than  by  making  it. 

How  can  this  be?  Because,  though  we  have 
facilities  for  making  iron,  greater  perhaps  than 
any  other  people,  we  have  still  greater  facilities  for 
raising  agricultural  products. 

We  can  raise  forty  bushels  of  wheat  with,  say, 
twenty  days'  labor  that  will  purchase  a  ton  of  iron, 
to  produce  which  would  cost  twenty-five  days'  labor: 
net  saving,  five  days,  or  twenty  per  cent,  on  all  our 
iron. 

What  is  the  explanation  of  this  state  of  things  ? 

Land  is  an  instrument,  and  the  greatest  of  all,  in 
producing  agricultural  values.  Good  arable  land, 
on  which  wheat  is  raised  in  England,  is  worth,  say, 
two  hundred  dollars  an  acre. 

In  this  country,  the  same  is  worth,  perhaps,  twenty 


PROTECTION.  105 

dollars.*  Then,  with  our  price  of  land,  we  have  the 
advantage,  so  far,  over  the  European,  in  the  produc- 
tion of  crops,  of  nine-tenths,  or  ninety  per  cent.  Our 
capital  in  land  is  ten  times  as  productive  as  that  of 
England.  On  the  other  hand,  we  have  not  an  equal 
advantage  over  the  European  in  making  iron  ;  for, 
although  it  costs  him  more  labor  (and  labor  is,  as 
we  have  said,  the  chief  item  in  making  iron),  that 
labor  costs  him  much  less  per  day  than  it  costs  us  ; 
say,  at  least,  fifty  per  cent.  less.  So  that,  if  it  is  esti- 
mated to  cost  him  twice  as  much  labor  to  make  iron, 
still  labor  costs  him  no  more  in  money  than  ours 
costs  us.  In  respect  of  labor,  then,  we  are  on  a 
level. 

So  far  as  money,  as  capital,  is  concerned,  the  Euro- 
pean again  has  the  advantage  of  us  by  fifty  per  cent., 
since  money  is  as  well  worth  eight  per  cent,  here  as 
four  per  cent,  there. 

Now,  these  facilities  which  the  European  has,  from 
the  cheapness  of  labor  and  capital,  counterbalance 
to  a  great  extent,  if  not  fully,  the  advantages  which 
we  have  from  the  ease  with  which  we  can  get  the 
materials  of  which  iron  is  made. 

If  so,  in  getting  our  iron  by  raising  wheat,  we  have 
the  net  advantage  over  the  European  of  ninety  per 
cent,  in  the  land,  which  is  the  great  item  of  expense 
in  such  products. 

Such  is  the  situation.  We  will  now  apply  protec- 
tion. Government,  in  1816,  laid  a  duty  of  thirty 


*  Often  not  a  fourth  part  of  that  sum.  The  government  holds 
the  best  wheat  land  at  one  dollar  and  twenty-five  cents,  and  gives 
it  away  to  actual  settlers. 


106  EXCHANGE. 

dollars  per  ton  on  bar  iron ;  equal  to  about  fifty  per 
cent,  on  the  cost  of  the  foreign  article.  Let  us  in- 
quire into  the  effect  of  this  policy. 

1st.  More  iron  was  produced.  Labor  and  capital 
were  at  once  withdrawn  from  other  occupations,  and 
invested  in  furnaces  and  iron-making. 

2d.  A  great  loss  was  caused  to  the  general  produc- 
tion of  the  country.  If  labor  and  capital  were  with- 
drawn from  pursuits  of  ordinary  profitableness,  and 
invested  in  business  that  required  fifty  per  cent,  pro- 
tection to  make  it  profitable,  does  it  not  follow  that, 
on  the  whole  amount  made  under  the  forced  system 
of  production,  there  was  a  loss  to  the  country  of 
thirty-three  and  one-third  percent.;  thirty-three  and 
one-third  per  cent,  of  ninety,  the  enhanced  price, 
being  fifty  per  cent,  on  sixty,  the  original  price?* 

3d.  Many  wasteful  and  disastrous  experiments 
were  made.  When  any  branch  of  industry  grows 
up  naturally,  it  commences  upon  a  small  scale,  and 
is  cautiously  extended,  as  found  profitable.  Under 
a  forced  system,  it  is  quite  otherwise.  A  duty  of 
thirty  dollars  a  ton  is  laid  upon  iron. 

Pennsylvania  is  full  of  iron  ore  and  coal.  What 
prevents  her  from  making  a  vast  sum  by  it?  Has 
she  not  a  protection  of  fifty  per  cent.?  So  every- 
body reasons;  so  everybody  acts.  Great  establish- 

*  It  should  be  understood  that  there  can  be  no  greater  DISCOUNT 
than  one  hundred  per  cent  ,  which  takes  the  whole  of  anything; 
yet  there  are  men  who  profess  to  be  learned  and  even  well  versed 
in  financial  matters,  who  speak  very  flippantly  of  two  hundred  or 
five  hundred  per  cent,  discount.  They  confound  discount  with 
premium.  The  first  is  limited  to  one  hundred,  the  latter  is  illimi- 
table. 


PROTECTION.  107 

ments  are  started  at  once.  There  is  no  occasion 
longer  to  consult  adaptations  of  character,  experience 
in  business,  or  local  economy.  Merchants,  profes- 
sional men,  farmers,  mechanics,  all  are  seized  with 
the  mania  of  iron-making.  Large  iron  works  are 
hastily  and  ignorantly  got  up.  They  are  managed 
by  incompetent  men,  worked  by  inexperienced  hands, 
they  turn  out  imperfect  iron,  with  inevitable  loss  and 
final  insolvency. 

And  the  iron  interest  clamors  loudly  and  success- 
fully for  more  protection.  These  are  not  accidental 
or  peculiar  results,  but  natural  and  certain,  where 
the  great  laws  of  trade  and  the  even  course  of  pro- 
duction are  disturbed. 

Such  were  the  actual  facts  in  regard  to  the  manu- 
facture of  iron  in  this  country,  and  they  illustrate 
in  the  most  clear  and  forcible  manner  the  legitimate 
results  that  must  ever  attend  all  efforts  to  force  the 
industry  of  the  nation  into  unnatural  channels,  or 
stimulate  a  branch  of  production,  which,  as  in  the 
case  of  iron,  as  just  stated,  had  already  been  success- 
fully started,  was  gradually  extending  and  prosper- 
ing as  much  as  other  industries. 

But  it  may  be  urged  that,  if  a  part  of  the  labor 
of  the  country  had  not  been  taken  from  agriculture, 
its  products  would  have  declined  in  value,  and  this 
would  have  counterbalanced  what  was  lost  by  the 
manufacture  of  iron. 

The  markets  of  the  world  being  open  to  us,  all 
our  surplus  products  would  remain  in  demand.  Pro- 
visions, especially,  are  a  sort  of  "  legal  tender  "  the 
world  over;  and  there  seems  to  be  no  immediate 
occasion  to  anticipate  their  disuse. 


108  EXCHANGE. 

If  there  were  no  other  markets  open  but  those  at 
home,  there  would  be  a  certain  tendency,  not  at  all 
frightful  in  its  vehemence,  to  a  decline  of  prices,  in 
a  country  like  ours;  because  an  agricultural  people, 
under  favorable  circumstances,  always  produces 
more  than  it  consumes,  and  would,  sooner  or  later, 
create  such  a  surplus  as  to  lower  the  price,  and  as 
soon  as  wheat  had  fallen  so  low  that  it  required  as 
many  days'  work  to  get  a  ton  of  iron  by  raising 
wheat  as  by  working  the  ore,  the  manufacture  would 
be  successfully  introduced.  That  is  precisely  the 
point  at  which  this  branch  of  industry  would  legiti- 
mately begin,  and  every  other  desirable  manufacture 
be  successfully  started. 

A  striking  illustration  of  the  sad  effects  certain 
to  follow  protection,  or  any  extraordinary  and  un- 
natural stimulus  given  to  a  particular  branch  of 
industry,  has  been  afforded  by  the  paper  interest  in 
this  country. 

The  late  war  created  an  immensely  increased  de- 
mand for  paper,  and  it  advanced  to  an  exorbitant 
price.  This  caused  a  rapid  extension  of  the  busi- 
ness, and  mills  were  erected  in  all  parts  of  the  coun- 
try. Peace  came,  the  extra  demand  fell  off,  while 
the  number  and  capacity  of  the  mills  having  been 
largely  increased,  they  were  prepared  to  supply  a 
greater  amount  than  was  required,  even  during  the 
war.  Over-production  was  the  consequence;  a  ruin- 
ous fall  of  prices,  general  stagnation;  and  when  a 
great  freshet  in  Massachusetts,  in  1869,  swept  off  a 
large  number  of  these  establishments,  the  event  was 
hailed  as  a  fortunate  circumstance,  as  undoubtedly 
it  was,  to  the  trade.  The  destruction  of  property  a 
blessing! 


FALLACIES  OF  PROTECTIVE  THEORY.      109 


CHAPTER  IV. 

FALLACIES  OF  THE  PROTECTIVE  THEORY. 

WE  now  pass  from  the  consideration  of  the  prin- 
ciples of  protection,  to  illustrate  their  application. 
We  believe  we  have  shown  the  unsoundness  of  that 
political  philosophy  which  proposes  to  substitute 
artificial  for  natural  laws,  in  production.  But  there 
remains  some  popular  arguments,  often  sincerely 
urged,  which  we  will  now  notice. 

PROTECTION    OF   INFANT   MANUFACTURES. 

Fallacy  1st.  It  is  claimed  as  good  policy  to  protect 
"  an  infant  manufacture"  until  it  is  well  established, 
because  it  will  then  take  care  of  itself  and  ultimately 
confer  great  wealth  on  the  country. 

This  may  be  called  the  primary  fallacy,  because  the 
first  announced  and  most  successfully  advocated.  It 
was  not  contended,  during  the  early  period  of  tariff 
legislation  (say  from  1816  to  1828),  that  protective 
duties  were  not  a  heavy  tax  upon  consumers,  but 
that  they  were  temporary,  and  would  in  a  short  time 
secure  the  object  sought,  and  be  then  discontinued  ; 
and  it  was  only  a  belief  in  the  truth  of  this  assump- 
tion which  secured  the  enactment  of  the  first  tariffs. 

In  reply  to  the  argument  for  protecting  an  infant 
manufacture,  it  may  be  remarked : 

(a)  There  is  no  assurance,  under  a  system  which 
10 


110  EXCHANGE. 

removes  the  sole  test  of  usefulness  and  self-support 
from  the  production  of  a  people,  that  enterprises 
will  not  spring  up  which  never  will  come  to  matu- 
rity, which  have  no  vital  force  of  themselves,  which 
exist  solely  by  reason  of  the  protection,  and  will 
never  become  remunerative.  If  good  enterprises, 
why  not  bad,  since  the  test  of  bad  or  good  has  been 
withdrawn  ?  Thus  the  whole  industry  of  a  country 
may  become  perverted  and  falsified  by  removing  the 
principle  of  natural  competition.  There  will  be  no 
reason  for  healthful  industries  to  spring  up,  which 
will  not  also  give  life  to  such  as  are  weak,  tardy, 
ephemeral ;  to  such  as  are  parasitic  and  exhausting. 

(6)  Other  things  aside,  the  desirableness  of  raising 
the  u  infant"  will  depend  very  much  on  the  length 
of  time  and  total  cost  required  to  bring  it  to  full  age 
and  size. 

France  protected  one  of  these  industrial  infants; 
i.e.  the  beet-sugar  culture.  Dr.  Wayland  said  of  it, 
in  1837,  "  The  present  protection  costs  one  million 
and  four  hundred  thousand  pounds  per  annum. 
Suppose  this  to  continue  for  twenty  years,  it  will 
amount  to  no  less  than  twenty-eight  million  pounds 
sterling;  the  interest  of  which,  at  five  per  cent.,  will 
bring,  at  two  and  a  half  pence  per  pound,  one  hun- 
dred and  twenty-six  million  pounds  of  sugar,  or 
nearly  the  whole  annual  amount  of  sugar  now  con- 
sumed in  France."  In  1871,  we  can  say  that  this 
child,  born  in  the  early  part  of  the  great  Napoleon's 
career,  has  not  yet  become  strong  enough  to  walk 
alone,  or  hardy  enough  to  take  the  air.  Supposing 
an  equable  annual  consumption  of  any  article,  it  re- 
quires but  common  school  arithmetic  to  show  that  a 


FALLACIES    OF    PROTECTIVE    THEORY.  Ill 

protection  to  ihe  extent  of  fifty  per  cent.,  continuing 
for  eighteen  year,s,  would  amount  to  a  sum  which,  at 
six  per  cent,  interest,  would  furnish  the  nation  in 
that  article  to  the  end  of  time,  without  ever  paying 
anything  more  for  it. 

What  has  been  the  success  of  this  system  of  legis- 
lative protection  in  the  United  States?  Beginning 
with  1820,  we  find,  in  the  five  following  decades, 
that  the  average  duties  on  dutiable  goods  were  (see 
Wells's  Report,  1869,  page  144) : 

1820  to  1830 38  per  cent. 

1830  to  1840  .........  33    "       " 

1840  to  1850 28 

1850  to  1860 23 

1860  to  1870 38£ 

Average  duties  for  fifty  years  ....  32 

"            "  "  last  five  years      .     .  45^ 

"  "        "  1870 47    "      " 

Such  has  been  the  protection  given  to  our  indus- 
trial protlg&s  for  the  last  half  century,  and  yet  we  do 
not  find  that  they  have  arrived  at  that  degree  of 
strength  and  maturity  at  which  they  are  content  to 
be  left  to  competition  with  foreign  producers.  They 
still  make  strenuous  exertions  to  maintain  the  pres- 
ent high  rates  of  duties,  and  in  many  cases  to  increase 
them. 

(c)  Finally,  no  sound  and  healthful  manufacture 
needs  protection  at  all.  The  phrase  "infancy"  is 
entirely  sophistical,  as  applied  to  any  branch  of  legit- 
imate industry.  Each  one  comes  full-grown  and  full- 
armed  into  life.  We  do  not  mean  that  it  has  no 
growth,  as  far  as  extension  is  concerned.  It  certainly 
does  go  on  from  town  to  town,  from  State  to^  State, 


112  EXCHANGE. 

out  of  small  beginnings.  But  there  is  no  infancy, 
so  far  as  completeness  or  robustness  of  life  is  con- 
cerned. 

A  remarkable  confirmation  of  the  truth  of  these 
remarks  is  found  in  the  history  of  the  boot  and 
shoe  manufactures  of  the  United  States.  They 
never  asked  for  protection;  never  received  any 
notice  in  all  the  conflicts  for  increased  tariffs. 
The  trade  grew  up  naturally,  steadily,  and  profit- 
ably from  the  first ;  increasing  gradually,  with  the 
growth  of  the  country,  until,  at  the  present  time, 
it  is  not  only  the  largest,  but  one  of  the  most  profit- 
able branches  of  manufacturing  industry.  In  Mas- 
sachusetts alone,  this  manufacture  extends  to  near 
one  hundred  million  dollars  annually,  and  is  by 
far  the  most  advantageous  branch  of  industry  in 
the  State. 

It  is  no  exaggeration  to  say  that  hundreds  of 
millions  of  dollars  have  been  sunk  in  the  cotton 
and  woollen  business  in  this  country,  in  consequence 
of  the  unnatural  stimulus  given  by  tariff' legislation, 
which  has  induced  at  different  times  a  too  rapid 
extension  of  those  branches  of  manufacture.  The 
boot  and  shoe  trade  has  lost  nothing  in  that  way. 

Q    DEVELOPMENT  OF  MANUFACTURES. 

Fallacy  2d.  That  protection  especially  develops 
manufactures;  and  manufacturing  countries  are 
found  to  be  in  fact  richer  than  those  more  ex- 
clusively agricultural. 

Both  propositions  are  true  in  an  isolated  form. 

Other  things  equal,  in  a  normal  state  of  things 


FALLACIES    OF    PROTECTIVE    THEORY.  113 

manufacturing  communities  are  older  than  agri- 
cultural, and,  of  course,  have  much  greater  ac- 
cumulated wealth.  England  is  older  and  richer 
than  the  United  States ;  Massachusetts  than  Ohio. 
Manufactures  arise  because  a  people  have  a  dense 
population,  abundant  capital,  and  great  industrial 
activity.  Under  such  circumstances,  great  wealth 
will  be  created,  because  these  are  the  fit  conditions 
of  creating  wealth. 

It  is,  without  question,  true,  that  in  an  equal 
manufacturing  population  will  be  found  a  greater 
accumulation  of  wealth.  One  important  reason 
of  this  is,  that  a  larger  share  of  the  population 
are  engaged  in  production,  and  a  larger  amount 
of  capital  is  employed.  Women  and  children,  who 
could  earn  but  little  in  agricultural  labors,  can  earn 
much  in  manufacturing.  This  is  one  of  the  most 
striking  results  of  a  division  of  labor,  as  we  have 
already  shown.  As  we  carry  on  agriculture,  women 
and  children  do  little,  though  in  Continental  Europe 
they  do  much.  Agriculture,  too,  can  be  performed 
only  in  certain  portions  of  the  year.  Manufactur- 
ing need  never  stop,  summer  or  winter,  cold  or  hot, 
fair  or  foul.  This  makes  a  wonderful  difference. 

All  these,  however,  are  economical  advantages, 
which  manufacturing  communities  have,  when  prop- 
erly constituted  and  employed.  These  are  reasons 
which  may  induce  such  industry;  never  reasons 
why  it  should  be  compelled. 

There  is  a  principle  always  operating  to  bring 
manufactures  out,  on  every  part  of  the  earth's  sur- 
face. It  is  the  impossibility  of  carrying  on  certain 
branches  anywhere  but  at  the  place  where  the  article 

10* 


114  EXCHANGE. 

is  wanted.  It  would  be  within  bounds  to  say  that 
four -fifths  of  all  the  present  consumption  of  manufactures 
would  be  supplied  by  our  national  industry,  irrespective 
of  protection. 

RAISING   THE    RATE    OF   WAGES. 

Fallacy  3d.  That  high  tariff  duties,  by  excluding 
foreign  commodities  and  causing  their  production 
at  home,  raise  the  rate  of  wages,  and  thus  benefit 
the  laborer. 

Without  entering  upon  the  question  whether 
tariff  duties,  however  high,  can  have  such  an  effect, 
it  is  sufficient  to  say  that  this  assumption  ignores 
the  important  consideration  that  the  laborer  is  a 
consumer  as  well  as  a  producer;  and  that  he  con- 
sumes as  much  in  value  as  he  creates.  Yet  such  is 
the  fact.  If  he  does  not  actually  consume  from  day 
to  day  all  he  earns,  if  he  lays  up  a  part,  and  finally 
invests  it  in  a  house  or  other  property,  the  result  is 
the  same  to  him  ;  for  whatever  he  purchases  will  be 
equally  advanced  in  cost  by  the  supposed  rise  in 
wages,  since  every  kind  of  property  being  produced 
by  labor  must  rise  equally  with  the  rate  of  wages, 
and  therefore  the  laborer  can  gain  nothing  by  a  rise 
of  prices  occasioned  by  tariff  taxation,  even  if  it  did 
raise  the  general  rate  of  wages.  So  far  from  being 
benefited  by  duties  imposed  for  the  purpose  of 
forcing  industry  from  one  branch  of  production  to 
another,  the  actual  wages  of  the  laborer,  as  meas- 
ured by  the  commodities  he  can  get  in  exchange 
for  them,  must  be  diminished. 

To  many  minds  it  seems  quite  clear  that,  when 
the  laborer  in  America  and  the  laborer  in  Europe 


FALLACIES  OF  PROTECTIVE  THEORY.      115 

are  engaged  in  producing  the  same  commodity,  and 
the  wages  of  the  latter  are  but  half  those  of  the 
former,  if  the  European  is  allowed  to  send  his  com- 
modity free  of  duties  to  this  country,  the  home 
laborer  must  be  driven  from  his  employment,  or 
his  wages  be  reduced  to  the  same  rate  as  those  of 
the  foreigner. 

The  fallacy  of  this  may  be  seen  by  the  following 
illustration:  "Suppose  pig-iron  at  the  furnace  in 
Pennsylvania  to  be  $24  per  ton,  and  $24  in  Wales ; 
the  wages  of  the  Pennsylvanian  might  still  be  $3 
per  day  and  in  Wales  $1  per  day,  because  it  would 
require  only  eight  days'  labor  to  quarry  the  ore  and 
coal  on  the  surface  in  Pennsylvania,  and  twenty- 
four  days  to  haul  it  up  from  the  deep  mines  of 
Wales."  This  statement,  which  corresponds  quite 
truly  to  the  facts  in  the  case,  shows  conclusively 
why  it  is  that  wages  in  this  country  may  be  double 
and  treble  what  they  are  abroad,  and  yet  we  may 
compete  successfully  with  the  foreigner. 

DEFENCE  AGAINST  PAUPER  LABOR. 

Fallacy  4th.  That  the  introduction  of  foreign  fab- 
rics that  come  into  direct  competition  with  our  own 
must  reduce  the  American  to  the  same  miserable 
condition  as  the  foreign  laborer. 

This  is  doubtless  a  most  effective  and  popular  ap- 
peal in  favor  of  excluding  European  manufactures. 

That  labor  is  lower  in  all  other  countries  than  in 
the  United  States,  is  universally  admitted ;  that  in 
some  communities  laborers  are  so  oppressed  as  to 
be  reduced  to  nearly  a  state  of  pauperism,  is  also 
well  known ;  and  in  view  of  these  facts,  it  is  asked, 


116  EXCHANGE. 

with  great  emphasis,  whether  we  shall  admit  these 
poorly  paid  laborers  into  competition  with  our  own? 
whether  we  shall  reduce  our  workingrnen  to  a  level 
with  those  of  less  favored  countries?  On  this  point, 
there  is  but  one  opinion.  All  agree  that  nothing 
should  be  done  to  degrade  the  condition  or  lower 
the  compensation  of  the  American  laborer;  and  the 
only  matter  in  dispute  is,  whether  permitting  the 
latter  to  purchase  the  commodities  of  the  former, 
because  they  can  be  had  at  a  less  cost,  will  have  the 
assumed  effect.  If  this  can  be  shown,  the  argument 
is  at  an  end.  If,  on  the  other  hand,  the  very  reverse 
of  this  is  true,  then  the  position  taken  by  protec- 
tionists falls  to  the  ground. 

The  question  of  higher  interest  to  the  laborer  of 
every  country  is,  how  he  can  procure  the  largest 
amount  of  the  commodities  he  wants,  with  the 
smallest  amount  of  his  own  efforts.  It  matters  not  to 
him  whether  the  foreign  laborer  works  for  ten  pence 
or  ten  shillings  per  day:  it  is  the  quantity  of  that 
laborer's  products  he  can  command  in  exchange  for 
his  own  labor  that  alone  concerns  him.  He  is  neither 
better  nor  worse  off  because  the  laborers  of  another 
country  live  in  comparative  poverty.  Daniel  Web- 
ster, in  1820,  made  the  following  impressive  re- 
mark: u  We  cannot  afford  to  do  with  our  intel- 
ligent labor  what  paupers  can  do  as  well  for  us." 

So  far  as  the  native  laborer  is  concerned,  the 
lower  the  rate  of  foreign  wages  the  better;  for,  as  a 
consequence,  he  gets  a  larger  amount  of  the  foreign 
product  in  exchange  for  his  own.  This  may  be  a 
misfortune  to  the  foreign,  but  is  certainly  no  dis- 
advantage to  the  home  laborer 


FALLACIES  OF  PROTECTIVE  THEORY.      117 

In  the  great  competition  of  universal  industry, 
which  countries  have  most  to  fear, — those  in  which 
wages  are  high,  or  those  in  which  they  are  low  ? 
Neither,  in  truth,  has  anything  to  fear  on  account 
of  the  clearness  or  cheapness  of  the  other's  labor,  and 
therefore  it  cannot  be  good  policy  for  any  nation  to 
preclude  the  introduction  of  foreign  commodities  for 
such  a  reason. 

HOME    MARKET. 

Fallacy  5th.  That  a  home  market  should  be  created 
for  agricultural  products,  by  restricting  the  impor- 
tation of  manufactured  articles  and  causing  their 
production  in  this  country,  thus  placing  the  manu- 
facturer by  the  side  of  the  cultivator  of  the  soil. 

This  is  a  very  pernicious,  because  a  very  plausible 
and  delusive  fallacy.  It  was  this  idea  that  led  Mr. 
Calhoun  and  his  friends  to  inaugurate  the  tariff  in 
1816.  They  wished  to  secure  a  home  market  for  all 
their  cotton.  They  tried  the  experiment,  and  found 
that  the  whole  consumption  of  the  United  States  was 
not,  and  could  not  be,  equal  to  more  than  one-third 
of  their  cotton  crop,  and  therefore  that  they  lost  far 
more  than  they  gained  by  the  restrictive  policy. 
Efforts  have  been  made  to  induce  the  belief  that  the 
people  of  the  Western  States  would  be  especially 
benefited  if  such  restrictions  were  laid  upon  trade  as 
to  insure  the  production  at  home  of  all  manufactures 
wanted  for  consumption,  and  thus  create  a  home  mar- 
ket for  all  their  products  ;  but  experience  would  show 
them  that  the  home  demand  could  never  be  made 
equal  to  the  productions  of  their  prairies.  Our  terri- 
tory is  so  vast  and  so  fertile  that  we  must  produce 


118  EXCHANGE. 

the  largest  surplus  of  breadstuff's,  provisions,  cotton, 
and  petroleum  of  any  people  on  earth,  and  this  sur- 
plus will  increase  with  the  increase  of  population. 
For  this  surplus  we  must  have  a  foreign  market,  or 
our  own  growth  as  a  people  will  be  greatly  retarded. 
Therefore  a  large  export  demand  for  all  these  pro- 
ducts is  of  the  first  importance.  Not  only  shall  we 
produce  a  large  surplus,  but  whatever  that  surplus  is 
worth  will  determine  the  price  of  all  the  crop, 
whether  of  corn  or  cotton.  Upon  foreign  markets 
we  must  depend,  and  should  therefore  interpose 
as  little  obstruction  to  trade  as  possible.  This 
would  not  at  all  prevent,  but  rather  accelerate,  the 
normal  and  healthy  growth  of  manufactures  at  the 
West,  the  great  natural  section  for  agricultural 
products. 

EXHAUSTION    OF   THE    SOIL. 

Fallacy  6th.  That  the  exportation  of  breadstuffs, 
cotton,  and  other  agricultural  products  fatally  ex- 
hausts the  soil,  and  therefore  a  home  market  should 
be  created,  so  that  this  result  may  be  prevented. 

It  is  true,  other  things  equal,  that  the  constant 
carrying  away  from  the  soil  its  fertilizing  properties 
will  gradually  reduce  its  productive  power.  It  is 
also  true  that  in  every  new  country  the  earliest 
settlers  rely  entirely  upon  the  natural  fertility  of 
the  earth.  It  is  all  the  available  capital  they  have. 
It  is  well  that  they  can  do  this,  because  having  every- 
thing to  do,  and  but  little  to  do  with, — dwellings, 
roads,  bridges,  school-houses,  churches,  and  other 
private  and  public  wants  to  provide  for, — if  nature 
were  not  thus  kind,  their  progress  would  be  slow 


FALLACIES  OF  PROTECTIVE  THEORY.      119 

and  difficult.     This  has  ever  been  the  case  in  all  new 
settlements. 

But  what  succeeds  to  this  primitive  condition  of 
things?  When  the  original  fertility  is  exhausted, 
when  the  people  have  acquired  so  much  wealth  as 
to  be  able  to  attend  to  the  actual  cultivation  and  im- 
provement of  the  soil,  they  invariably  commence  the 
art  of  true  agriculture,  by  various  processes  of  fertili- 
zation. The  result  always  has  been,  always  will  be, 
that  old  countries  that  have  been  long  cropped  are 
the  richest  in  their  fertility.  Instance  Great  Britain, 
and  every  other  country  where  persons  and  property 
have  been  made  secure  by  law. 

PROTECTION    OF    CAPITAL. 

Fallacy  7th.  That  the  home  capitalist  is  especially 
benefited  by  protective  duties  which  shut  off  com- 
petition with  the  cheaper  capital  of  the  foreigner. 

This  is  a  very  common  but  mistaken  opinion.  If 
it  be  for  the  interest  of  the  laborer,  as  we  have  en- 
deavored to  show,  that  the  rate  of  wages  should  be 
lower  abroad  than  at  home,  it  must  be  equally  for- 
tunate for  the  capitalist  that  the  rate  of  interest  in 
other  countries  is  lower  than  in  his  own  ;  because  in 
exchanging  his  products,  or  that  which  has  been 
created  by  the  use  of  his  capital,  for  commodities 
created  with  cheaper  capital,  he  will  have  the  same 
advantage  we  have  seen  to  inure  to  the  laborer.  If 
the  rate  abroad  is  but  half  what  he  receives,  he  ob- 
tains twice  as  many  commodities  for  the  use  or  em- 
ployment of  his  capital  as  he  otherwise  could  do. 
The  laborer  and  capitalist  stand  on  precisely  the 


OF  THE 

UNIVERSITY 


120  EXCHANGE. 

same  platform  ;  and  their  interests  are  in  this  case, 
as  in  all  others,  in  perfect  unison. 

FREEDOM     OF     EXCHANGE     ESPECIALLY    BENEFICIAL    TO 
THE    MERCANTILE    AND    TRADING    CLASSES. 

Fallacy  8th.  That  unrestricted  trade  benefits  the 
mercantile  and  trading  classes  only,  at  the  expense 
of  all  others. 

This  idea,  by  whomsoever  entertained,  is  but  a 
short-sighted  and  incorrect  view  of  the  matter,  since 
the  amount  of  foreign  or  domestic  trade  can  only  be 
as  the  amount  of  production  ;  and  therefore,  if  obstruc- 
tions to  trade  do,  as  we  insist,  necessarily  diminish 
production,  then  they  injure  not  only  the  producing 
classes,  but  the  trading  and  transportation  classes  as 
well. 

Besides  the  direct  producers,  the  laborers  and 
capitalists  of  the  nation,  a  third  class  of  persons  is 
found  to  whom  the  question  of  freedom  of  exchange 
is  of  great  importance ;  viz.,  the  entrepreneurs,  the 
mercantile,  trading,  and  transportation  classes,  who 
stand  between  the  producer  and  consumer,  and 
through  whose  hands  by  far  the  greatest  part  of  the 
products  of  a  nation  must  pass  before  they  are  finally 
disposed  of  in  use. 

If  it  be  true  that  the  fewer  the  obstacles  in  the 
way  of  exchanging  commodities,  the  greater  will 
be  the  production,  and  of  course  the  larger  the  field 
of  commercial  operations,  then  we  shall  find  that  the 
interests  of  this  middle  class  are  quite  in  harmony 
with  those  of  which  we  have  previously  spoken.  The 
business  of  the  merchant  must  be  extended  or  con- 
tracted just  in  proportion  to  the  extension  or  con- 


FALLACIES  OF  PROTECTIVE  THEORY.      121 

traction  of  the  general  production  of  the  countrj  in 
which  he  resides. 

If,  then,  as  we  have  endeavored  to  show,  the  re- 
moval of  all  obstacles  to  the  most  unrestricted  com- 
mercial intercourse  is  for  the  interest  of  the  laborer, 
the  agriculturist,  and  other  classes  connected  with 
production  and  exchange, — as  these  must  constitute 
an  immense  majority  of  the  entire  population,  at 
least  nine-tenths  of  the  whole, — the  conclusion  is 
irresistible  that  the  general  industry  of  any  people 
is  best  protected  by  entire  freedom  of  intercourse 
with  all  mankind,  whether  paupers  or  princes. 

PROTECTION    IS    A   WAR    OF   INTERESTS, 
I  ^K^li,  / 

which  necessarily  introduces  internecine  strife  be^ 
tween  the  different  industries  of  a  country;  and  the  *j 
further  the  policy  is  carried,  the  more  severe  the  an- 
tagonism. Whenever  government  interferes  to  favor 
one  industry  by  raising  the  price  of  its  products,  it 
does  so,  of  necessit}7,  by  taxing  all  other  interests. 
If  prices  are  raised,  somebody  must  pay  the  advance. 
When  the  price  of  coal,  for  example,  is  enhanced  by 
a  duty  on  the  foreign  article,  every  manufacturer  in 
the  nation  who  uses  coal  pays  a  tax  to  the  miner. 
The  interests  of  the  miner  and  coal  consumer  are 
brought  into  collision,  and  one  must  suffer  that  the 
other  may  be  benefited. 

If  government  interferes  to  obstruct  the  trade  in 
iron,  every  mechanic  in  the  nation,  to  whom  it  is 
raw  material  (and  it  is  so  to  a  numerous  class  of  ar- 
tisans), is  injured  in  his  business.  There  are  proba- 
bly at  least  a  hundred  different  industries  for  which 
iron,  in  some  of  its  forms,  is  the  raw  material ;  and 

11 


122  EXCHANGE. 

in  the  aggregate  these  are  many  times  larger  than 
the  production  of  the  iron  itself;  yet  all  must  bear 
the  greater  cost  of  the  article  which  forms  the  basis 
of  their  operations.  Their  power  to  compete  with 
the  foreigner  is  reduced  to  the  whole  extent  of  the 
duties  they  are  compelled  indirectly  to  pay. 

Besides  all  this  injury  to  the  general  industry, 
every  consumer  of  iron  (and  who  is  not  such  directly 
or  indirectly  ?)  is  brought  into  a  position  of  antago- 
nism with  the  iron  producer.  The  former  is  injured 
to  a  greater  extent  even  than  the  latter  is  benefited. 
There  is  no  escape  from  this  conclusion.  Protect 
the  domestic  wool-grower  by  a  duty  upon  the  foreign 
article,  and  at  once  the  woollen  manufacturer  justly 
complains  that  his  business  has  been  interfered  with, 
because  he  wants  a  free  opportunity  to  get  a  supply 
of  the  foreign  article  as  low  as  it  can  be  had  in  Eng- 
land or  any  other  country,  otherwise  he  cannot 
compete  with  the  foreign  manufacturer.  Thus  a 
direct  war  of  interests  between  the  wool-grower  and 
woollen  manufacturer  is  commenced,  destructive  to 
both.  If  a  duty  is  laid  on  wool,  the  manufacturer 
certainly  suiters :  if,  to  counteract  this,  a  duty  is  laid 
on  foreign  fabrics,  both  parties  are  injured,  and  the 
entire  community  is  laid  under  onerous  burdens. 

Perhaps  the  most  striking  instance  of  the  col- 
lision of  interests  arising  from  attempts  to  favor  a 
particular  branch  of  industry  is  found  in  the  case 
of  the  home  duties  laid  to  favor  the  manufacture  of 
steel.  "  The  whole  number  of  persons  engaged  in 
the  direct  manufacture  of  steel  in  the  United  Statea 
is  not,  as  the  Special  Commissioner  of  Revenue  in- 
forms us,  in  excess  of  three  thousand  live  hundred ; 


FALLACIES    OF    PROTECTIVE    THEORY.  123 

while  the  number  of  those  who  use  steel  as  a  raw 
material  for  the  manufacture  of  axes,  chisels,  files, 
cutlery,  spades,  shovels,  pistols,  machinery,  and 
other  tools  and  implements,  is  not  less  than  two 
hundred  thousand ;  while  an  addition  of  those  in- 
directly interested  in  having  cheap  steel  would 
swell  this  number  to  one  million  five  hundred 
thousand." 

Now  if  it  were  true  that  the  duties  upon  steel 
advanced  the  wages  of  the  three  thousand  five 
hundred  laborers  employed  in  producing  it,  must 
not  the  business  of  the  two  hundred  thousand  per- 
sons using  steel  as  a  raw  material  be  correspond- 
ingly depressed?  Would  not  the  latter,  being  many 
times  more  numerous,  lose  more  than  the  former 
gained?  That  such  was  the  view  of  the  case  taken 
by  those  who  used  steel  as  a  raw  material,  we  know 
from  actual  information,  personally  obtained  from 
one  of  the  largest  manufacturers  of  cutlery  in  the 
United  States.  We  heard  him  remark  that  the 
heavy  duties  upon  steel  operated  greatly  to  his  dis- 
advantage ;  and  if  Congress  would  remove  those 
duties,  he  did  not  need  any  protection  whatever, 
nor  ask  any  favors. 

The  result  would  seem  to  be  that  if  the  protec- 
tive duties  on  steel  benefit  three  thousand  five  hun- 
dred laborers  engaged  in  producing  it,  they  must 
injure  two  hundred  thousand  persons  employed  in 
working  it,  and  one  million  five  hundred  thousand 
connected  with  their  operations;  while  they  impose 
an  oppressive  tax  upon  a  population  of  thirty-eight 
millions. 

In  this  last  specimen  of  governmental  intenned- 


124  EXCHANGE. 

dling,  we  have  a  striking  illustration  of  the  certain 
effects  of  all  measures  designed  to  favor  particular 
interests. 


CHAPTEE  V. 

PROTECTION  (concluded).     OTHER   OBSTRUCTIONS 

CONSIDERED. 

LEGAL  protection,  as  we  have  already  said,  may 
be  imposed  from  one  or  more  of  four  general 
reasons. 

We  have  discussed  the  two  first,  viz.: 

To  raise  a  revenue. 

To  encourage  the  growth  of  certain  commodities 
at  home. 

We  now  come  to  the  remaining  reasons,  which 
will  demand  but  little  attention,  as  their  principles 
have  already  been  developed. 

1.  To  support  existing  manufactures. 

Here  we  leave  the  expediency  of  founding  special 
industries  by  a  system  of  protection,  and  confine 
ourselves  to  the  question,  whether  such  industries 
having  been  begun  and  developed  under  high  tariffs, 
capital  having  become  so  engaged,  labor  having  be- 
come so  employed,  it  is  not  necessary  to  continue 
the  protection. 

So  far  as  this  acknowledges  a  moral  obligation 
on  the  government  to  save  from  loss  those  who 
have  followed  the  guidance  of  its  laws,  it  is  a  ques- 
tion for  the  statesman.  But  the  economist  can  urge 


PROTECTION.  125 

that,  if  the  burden  of  such  bad  investments  must  be 
borne  by  the  public,  it  would  be  preferable  to  have 
it  assumed  in  the  shape  of  direct  relief  to  the  manu- 
facturers, rather  than  by  a  system  which  is  sure  to 
multiply  such  unfortunate  enterprises,  and  perpetu- 
ate their  weakness.  That  great  caution  and  for- 
bearance are  necessary,  in  removing  even  a  false 
institution,  is  not  a  maxim  which  economy  has  to 
teach  politics. 

THE   PRACTICAL   DIFFICULTY. 

And  here  we  come  face  to  face  with  the  great 
practical  difficulty  of  protection  in  our  country; 
that  which,  if  all  its  principles  were  triumphantly 
proved  in  general  reasoning,  should  still  throw  it 
out  of  our  legislation.  If  it  were  proved  harmless, 
if  it  were  proved  beneficial,  there  is  a  strong  reason 
against  ever  attempting  to  realize  it  here.  That 
difficulty  resides  in  the  varying  politics  of  our 
country.  Injurious  as  protection  is  to  the  best 
interests  of  the  country,  any  system  of  it,  however 
severe,  would  be  preferable  to  the  "  open-and-shut" 
policy,  absolutely  unavoidable  in  a  government  like 
ours.  It  is  not  within  the  bounds  of  reason  to  sup- 
pose that  the  alternate  successes  of  parties  will  not 
continue  to  convulse  our  national  legislation;  and 
therefore  it  is  with  emphasis  true,  that  a  persistent 
system  of  protection  is  only  possible  in  a  govern- 
ment with  great  conservative  force  and  great  central 
powers. 

2.  To  secure  commercial  independence.  True  com- 
mercial independence  is  attained  by  any  nation, 
when  its  natural  resources  are  so  developed  and 

11* 


126  EXCHANGE. 

cultivated  that  it  becomes  a  power  in  the  world, 
can  command  the  products  of  the  industry  of  every 
climate,  because  it  can  furnish  that  which  all  others 
want.  This  is  independence  in  commerce.  Inde- 
pendence of  commerce  is  the  independence  of  the 
savage. 

But  it  is  claimed  that  such  a  separation  from  all 
offices  of  kindness  is  necessary  to  protect  nations  in 
war.  So  far  as  the  state  urges  the  claims  of  its  own 
safety,  the  principles  of  economic  science  must  be 
silent.  But  this  interference  with  the  laws  of  value, 
for  the  preservation  of  the  national  life,  must  be 
strictly  limited  to  the  absolute  necessities  of  war. 

But  the  argument  for  protection  from  the  neces- 
sities of  war  has  almost  disappeared  in  the  intenser 
light  of  our  growing  civilization.  The  independ- 
ence of  each  nation  in  commerce,  existing  harmoni- 
ously with  its  dependence  on  commerce,  forms  the 
best  hope  of  peace  and  tranquillity  for  the  future. 
It  may  be  safely  assumed  that  the  probabilities  of 
war  between  any  two  peoples  are  inversely  as  their 
commercial  relations. 

THE   FINAL   ARGUMENT. 

But,  after  all  argument  has  been  closed  on  the 
principles  of  protection,  we  still  find  one  plea  re- 
maining. If  freedom  of  intercourse,  it  is  said,  were 
only  universal,  it  would  be  well ;  but,  since  it  is 
not,  each  nation  must  protect  itself,  and  do  as  it  is 
done  by. 

If  England  should  exclude  our  wheat,  she  would 
raise  the  price  of  the  article  at  home  ;  that  would 
necessarily  increase  the  expense  of  living  with  her 


PROTECTION.  127 

working  classes;  that  would  cause  a  rise  of  wages, 
that  would  enhance  the  cost  of  making  iron,  and  all 
other  commodities;  and  that  would  make  it  more 
easy  for  us  to  compete  with  her  in  producing  every 
article  we  need,  and  hasten  the  time  when  we  should 
supply  ourselves. 

Let  us  suppose  that  England  refuses  to  take  our 
wheat.  Would  that  be  a  good  reason  why  we 
should  not  take  iron  from  her,  if  we  get  it  so, 
cheaper  than  by  making  it?  We  have  already 
shown  that  the  protected  suffers  more  than  the 
excluded  community. 

What  advantage  is  there  in  refusing  to  buy  of  a 
nation  because  it  refuses  to  buy  of  us  ?  It  is  re- 
taliation and  revenge,  not  self-defence  or  self-vindi- 
cation. The  most  wise  and  useful  economical  act 
of  this  century  was  that  by  which,  by  the  exertions 
of  Mr.  Cobden,  England  and  France,  so  long  con- 
tending only  in  exclusions  and  mutual  injuries, 
threw  open  their  ports  to  the  free  entry  of  hun- 
dreds of  articles,  to  the  common  benefit  of  both, 
and  to  the  advancement  of  good  feeling  and  hearty 
alliance ;  a  measure  that,  between  the  years  1859 
and  1863,  increased  by  seventy-three  per  cent,  the 
trade  of  Great  Britain  with  France,  while  proving 
no  less  beneficial  to  the  labor  of  the  latter  country. 

We  infer,  from  all  that  has  preceded,  that  "pro- 
tection" is  an  unfortunate  expression.  To  restrict 
industry,  to  put  the  bad  on  the  level  of  the  good, 
to  remove  from  industry  its  only  guaranty  of  a  full 
reward,  to  contract  trade  and  neutralize  the  gifts 
of  Nature,  is  not  protection,  in  any  proper  sense 
of  the  word.  It  is  spoliation. 


128  EXCHANGE. 


OBSTRUCTION    TO    TRADE    BY    A    DEFECTIVE    STANDARD 
OP   VALUE. 

Governments  cannot  only  restrict  trade  by  heavy 
arid  discriminating  duties  on  foreign  goods,  bat 
also  by  establishing  or  permitting  a  false  standard 
of  value  through  a  redundant  and  consequently 
depreciated  currency,  which,  of  necessity,  prevents 
the  exportation  of  many  articles  that  might  other- 
wise be  advantageously  produced  in  the  country. 

The  consideration  of  this  question  more  properly 
belongs  to  another  department  of  our  general  sub- 
ject, and  we  present  it  now  only  that  it  may  be 
recognized  as  one  of  the  many  ways  in  which  gov- 
ernments unintentionally,  but  not  the  less  effect- 
ually, diminish  commerce  and  retard  domestic  man- 
ufactures. 

The  principle  involved  may  be  briefly  stated  aa 
follows:  A  depreciated  standard  of  value  raises  the 
cost  of  all  domestic  products  and  the  rate  of  wages 
as  measured  by  it,  and  of  course  increases  the  cost 
of  home  manufactures  to  such  an  extent  that  they 
cannot  compete  with  forign  products  at  home,  or  be 
advantageously  sent  to  those  countries  that  have  a 
correct  standard  of  value. 

The  practical  operation  of  this  principle  is  abun- 
dantly shown  by  the  fact  that  in  1860,  when  our 
currency  was  at  par  with  gold,  we  exported  of  our 
domestic  manufactures  $47,160,000,  while  in  1868 
the  amount  was  but  $37,856,723.  But  the  effect  is 
still  more  strikingly  seen  in  the  case  of  our  cotton 
fabrics,  the  exports  of  which  amounted  in  1860, 


PROTECTION.  129 

under  a  currency  at  par  with  gold,  to  $10,934,796 ; 
while  in  1868,  under  a  depreciated  currency,  they 
were  but  $3,479,324, — a  falling  off  of  nearly  two- 
thirds,  while,  according  to  the  rate  at  which  they 
previously  advanced,  they  should  have  trebled.  No 
demonstration  of  the  truthfulness  of  our  position 
could  be  more  complete  than  is  afforded  by  the 
tables  from  which  we  quote.  Indeed,  it  would 
seem  that  no  proof  in  the  case  could  be  needed, 
since  the  principle  is  self-evident  and  needs  only 
to  be  stated. 

TRANSPORTATION   OBSTACLES. 

A  new  and  serious  obstacle  to  the  general  trade 
of  the  country  has  presented  itself  within  the  last 
few  years,  in  the  heavy  railroad  tolls  imposed  in 
consequence  of  extensive  combinations  by  managers 
of  different  naturally  competing  lines,  who  are  thus 
enabled  to  establish  exorbitant  rates  for  freight. 

This  has  already  become  an  evil  of  great  magni- 
tude, and  is  evidently  increasing  with  the  constant 
extension  of  railroads  and  the  increase  of  these  com- 
binations, so  that  the  industry  of  some  sections  of 
the  country  is  already  sensibly  affected  by  it.  The 
results  of  these  monopolies  are  twofold : 

1.  They  discourage  production  ;  for  when  it  takes 
the  value  of  one  bushel  of  wheat  to  get  another 
bushel  to  market,  the  inducement  to  raise  wheat  is 
diminished :  so  of  all  other  products.  The  conse- 
quence is,  that  farmers  cannot  afford  to  cultivate 
their  least  productive  lands  at  all,  except  so  far  aa 
they  consume  their  own  products. 


130  EXCHANGE. 

2.  To  increase  the  cost  of  products  at  the  place  of 
exportation  is  to  diminish  trade,  especially  foreign 
commerce.  All  that  is  excessive  in  tolls  is  just  so 
much  protection  to  the  agriculture  of  other  coun- 
tries. If  it  cost  ten  or  fifteen  cents  per  bushel  more 
to  transport  wheat  from  Iowa  to  New  York  than  it 
ought,  the  wheat- grower  on  the  shores  of  the  Black 
Sea,  who  competes  with  the  American  producer  in 
the  markets  of  Europe,  has  the  full  advantage  of  it, 
and  will  increase  his  production  and  profits  accord- 
ingly. 

Duties  upon  exports  which  come  finally  into  com- 
petition with  foreign  productions  are  justly  consid- 
ered injurious  to  the  industry  and  trade  of  a  country ; 
but  excessive  tolls  have  the  same  effect,  besides 
being  more  objectionable  from  the  consideration 
that,  while  duties  would  go  into  the  public  treasury, 
and  constitute  a  part  of  the  national  revenue,  and 
thus  relieve  the  whole  people  of  a  part  of  the  public 
burdens,  tolls  only  enrich  the  few  who  own  or  man- 
age railroads. 

SOCIAL    OBSTACLES. 

Another  mode  in  which  trade  may  be  interrupted 
is  by  what  we  have  termed  social  obstacles.  We  have 
also  called  these  incidental,  there  being  no  original 
intention  to  affect  the  direction  of  labor.  These 
often  have  the  same  influence  upon  production  and 
exchange  that  physical  or  legal  obstructions  occa- 
sion. -A  most  impressive  illustration  is  found  in  the 
results  of  the  war  of  the  Rebellion  in  the  United 
States.  The  production  and  sale  of  cotton  in  this 
country  were  for  a  time  greatly  hindered,  almost 


PROTECTION.  131 

annihilated.  This  caused  an  immense  advance  in 
the  price  of  that  article  in  India  and  Egypt;  and 
this,  of  consequence,  greatly  stimulated  production 
and  speculation  in  those  countries,  especially  in 
India,  where  the  culture  had  been  comparatively  un- 
profitable. Under  the  encouragement  thus  afforded, 
it  became  far  more  advantageous  than  any  other 
branch  of  industry.  India  increased  in  wealth  with 
surprising  rapidity,  and  a  great  industrial  revolution 
was  effected.  But  it  was  at  a  heavy  expense  to  all 
other  peoples  and  countries.  What  India  gained 
Europe  and  America  lost,  the  former  as  consumer, 
the  latter  as  producer.  The  wealth  of  the  world  was 
not  increased  by  all  this,  but  largely  diminished,  and 
healthy  commerce  widely  deranged. 

Eyen  India  itself  has  not  been  permanently  bene- 
fited by  the  extraordinary  demand  for  cotton.  The 
return  of  peace  in  the  United  States,  bringing  down 
the  price  of  her  great  staple,  caused  extensive  bank- 
ruptcy and  general  commercial  distress,  greater  than 
ever  known  before.  Thousands  of  the  population 
starved  to  death  in  consequence  of  the  culture  of  rice 
having  been  abandoned  for  that  of  cotton. 


132  EXCHANGE. 


CHAPTER   VI. 

BALANCE    OF   TRADE. 

WHAT  is  meant  by  the  balance  of  trade  ? 

An  actual  balance  of  trade  is  the  difference  be- 
tween the  amount  of  values  exported  and  the  amount 
of  values  imported.  This  seems  a  very  simple  prop- 
osition ;  yet  the  question  is  one  of  great  complexity, 
from  the  fact  that  it  is  difficult  to  determine  with 
certainty  whether  the  exports  of  a  nation  do  or  do 
not  actually  equal  the  imports.  Superficial  observers 
resort  to  the  financial  returns  made  to  the  govern- 
ment; and  finding,  for  example,  that  the  imports  of 
1854  amounted  to  $304,562,381,  while  the  exports 
were  but  $278,241,064,  leaving  a  difference  of 
$26,321,317,  they  hastily  conclude  that  the  balance 
of  trade  was  against  this  country  to  that  amount. 
Such  a  conclusion  would  not  have  a  sufficient  foun- 
dation. 

To  understand  this  subject,  we  must  notice  that 
the  exports  are  stated  at  their  value  at  our  own 
custom-houses,  while  the  amount  imported  is  stated 
at  the  value  in  foreign  countries.  If  we  suppose 
the  amount  exported  in  1854  was  on  American  ac- 
count, and  paid  a  profit  of  only  nine  per  cent,  on  the 
custom-house  valuation,  we  shall  find  that  it  will 
amount  to  $25,041,695,  a  sum  very  near  the  assumed 
balance ,  and,  if  so,  the  commodities  exported  actu- 
ally paid  for  the  amount  imported,  and  the  supposed 
unfavorable  balance  is  annihilated.  As  the  goods 


BALANCE    OF   TRADE.  133 

exported  should  sell  for  enough  abroad,  and  as  they 
do  generally  sell  for  enough  to  pay  all  charges  of 
freight, insurance,  etc.,  with  reasonable  commissions, 
say  in  all  fifteen  per  cent.,  we  may  justly  infer  that 
there  was,  in  fact,  a  balance  in  favor  of  this  country 
in  1854.  But  the  question  whether  there  was  or 
was  not  an  actual  balance  that  year  can  only  be 
determined  by  ascertaining  whether  our  exports  gen- 
erally sold  for  an  advance  sufficient  to  pay  for  the  i  si- 
ports.  This  is  known  only  to  those  engaged  in  o  • 
familiar  with  the  results  of  the  export  trade  of  1854. 
The  balance  might  have  been  greater  or  less  than 
what  it  appears  from  custom-house  statistics. 

On  the  other  hand,  in  1855,  our  exports  exceeded 
our  imports  by  $13,688,326.  Does  that  show  a  bal- 
ance in  favor  of  the  United  States?  Apparently; 
yet  there  might  have  been  a  loss  upon  our  exports 
which  would  more  than  balance  the  $13,688,326. 

Although  the  financial  tables  of  the  Secretary  of 
the  Treasury  do  by  no  means  decide  the  balance  of 
trade,  and  the  custom-house  returns  are  never  con 
elusive  evidence,  yet  there  are  cases  in  which  there 
is  no  reasonable  doubt  on  which  side  the  balance  is. 
In  1836,  for  example,  we  exported  one  hundred  and 
twenty-eight  millions,  and  imported  one  hundred 
and  eighty-nine  millions ;  an  excess  of  sixty  one 
millions,  making  a  difference  of  sixty  per  cent,  over 
exports.  In  this  case,  there  could  be  no  doubt  there 
was  a  larger  actual  balance  against  the  country,  be- 
cause the  profits  could  not  have  been  equal  to  the 
excess.  So  too,  to  go  further  back,  in  1816  the  ex- 
ports were  fifty-two  millions;  imports,  one  hundred 
and  twelve  millions;  excess,  sixty  millions,  or  more 

12 


134  EXCHANGE. 

than  one  hundred  per  cent.  The  unfavorable  bal- 
ance in  both  cases  caused  great  distress  by  the 
necessary  exportation  of  specie. 

BALANCE  OF  TRADE — HOW  ADJUSTED. 

If  the  commerce  of  a  country  is  in  a  really  pros- 
perous condition,  the  value  of  its  imports  will,  in 
the  long-run,  exceed  its  actual  exports,  because  its 
export  trade  should  pay  a  profit.  No  country  is 
enriched  by  trade,  unless  its  aggregate  imports  do 
exceed  in  value  its  exports.  It  is  no  matter  whether 
the  excess  of  imports  over  exports  is  brought  into 
the  country  in  specie  or  any  other  desirable  com- 
modity, provided  its  own  currency  be  a  true  standard 
of  value. 

The  trade  of  the  United  States  for  1863  showed 
the  following  results :  Exports  (Financial  Report, 
18K4),  $350,152,125;  imports,  $252,187,587;  bal- 
ance, $97,864,538.  The  returns  also  showed  an  ex- 
port of  gold  to  the  amount  of  $82,364,482,  an  import 
of  gold  of  $9,584,105,  giving  a  balance  of  $72,780,377. 
A  considerable  part  of  this  gold  was,  doubtless,  sent 
abroad  for  safe  keeping  by  timid  capitalists,  and  not 
over-loyal  citizens.  The  large  balance  of  seventy- 
two  millions  in  favor  of  the  United  States  was  no 
indication  of  a  profitable  trade  that  year;  quite 
otherwise.  The  balance  of  gold  exported  in  1864 
was  ninety-one  millions.  Another  fact,  that  throws 
additional  conjecture  upon  the  apparent  balance  of 
trade,  is,  that  false  invoices  are  used  to  an  enormous 
extent  at  our  American  custom-houses.  Whenever 
duties  are  charged  upon  the  cost  of  the  commodities, 


BALANCE    OF    TRADE.  135 

it  is  an  object  to  have  them  invoiced  as  low  as  pos- 
sible. Fraudulent  invoices  are  often  made  out  abroad 
and  sworn  to  by  the  importers  here,  and  thus  the 
actual  value  or  amount  paid  for  the  foreign  merchan- 
dise is  not  accurately  exhibited.  The  Revenue  Com- 
missioners (see  their  Report  to  the  Secretary  of  the 
Treasury,  January  29,  1866,  page  45)  estimate  that 
the  frauds  at  the  New  York  Custom-House  alone 
are  from  "  twelve  to  twenty-live  millions  annually." 
The  aggregate  of  these  frauds  throughout  the  country 
has  been  estimated  as  high  as  forty  millions  per  an- 
num ;  but,  if  they  amount  to  only  thirty  millions, 
the  "  balance  of  trade"  is  seriously  influenced  by 
them. 

Many  considerations  of  this  general  character 
might  be  brought  forward ;  but  sufficient  l)as  al- 
ready been  said,  we  trust,  to  show  what  the  real 
nature  of  a  balance  of  trade  is,  and  how  difficult  a 
matter  it  must  always  be  to  determine  with  ac- 
curacy upon  which  side  it  actually  is,  and  what  its 
amount. 


PART  SECOND.-INSTRUMENTS  OF  EXCHANGE. 


CHAPTER  I. 

BARTER   AND   THE   DIFFERENT   FORMS    OF    CURRENCY. 

WE  have  discussed  the  principles  upon  which 
exchanges  are  made.  We  now  come  to  consider 
the  instruments  by  which  they  are  effected. 

These  are  of  three  kinds: 

1st.  Barter. 

2d.  A  common  medium,  or  currency. 

3d.  Different  forms  of  credit. 

No  person  produces  everything  he  wishes  to  con- 
sume. Even  in  the  savage  state,  men  will  obtain 
different  products,  as  they  have  skill  and  oppor- 
tunity. These  they  will  exchange  among  them- 
selves in  kind. 

As  the  civilized  state  appears,  the  necessity  for 
Interchange  of  commodities  increases,  and  barter, 
or  exchange  in  kind,  becomes  a  very  inconvenient 
and  clumsy  mode  of  effecting  the  desired  object. 
For  example,  the  farmer  may  wish  to  exchange 
wheat  for  a  hat;  but  the  hatter  is  already  supplied : 
what,  then,  will  the  hatter  accept?  A  table.  The 
farmer  must  then  go  to  the  cabinet-maker,  and  offer 
his  wheat  for  a  table.  But  the  cabinet-maker  is 
supplied  with  wheat.  He  would,  however,  accept 
a  pair  of  boots.  The  farmer  applies  to  the  boot- 
maker, who  happens  to  wish  for  wheat  and  accepts 
(136) 


BARTER   AND    CURRENCY.  137 

the  offer.  With  the  boots  the  farmer  gets  the  table, 
and  with  the  table  gets  the  hat  which  he  desired. 

In  such  a  state  of  things,  this  was  the  only  process 
by  which  exchanges  could  be  effected;  circuit  us, 
and  expensive  in  time  and  labor,  as  it  was. 

We  might  have  supposed  a  far  more  difficult 
case;  but  this  is  sufficient  to  illustrate  the  incon- 
venience of  barter,  or  the  direct  exchange  of  com- 
modities. But  there  is  still  another  difficulty,  of 
scarcely  less  magnitude.  When  articles  to  be  ex- 
changed became  numerous,  it  would  be  found  a 

o  " 

very  intricate  matter  to  establish  satisfactorily  the 
relative  value  of  each.  For  example,  how  many 
sheep  shall  be  given  for  a  cow?  How  many  cows 
for  a  horse?  How  much  corn  for  a  bushel  of  wheat? 
How  much  butter  for  a  gallon  of  molasses?  How 
many  eggs  for  a  pound  of  tea,  sugar,  or  coffee? 
How  many  of  any  or  all  of  these  for  a  cart,  plough, 
spade,  chair,  table,  etc.,  through  an  interirrtnable 
series  of  exchanges? 

Under  such  circumstances,  there  could  be  no 
such  thing  as  price,  because  there  would  be  no  com- 
mon standard,  to  which  the  value  of  all  articles 
could  be  referred. 

What,  then,  was  wanted  ?  Evidently,  some  article 
which  all  persons,  either  by  common  consent  or  the 
force  of  law,  shall  accept  for  whatever  they  have  to 
sell,  and  by  which  they  will  measure  the  value  of 
anything  sold. 

That  article  would  perform  two  important  func- 
tions ;  viz.,  it  would  be  an  instrument  of  exchange, 
and  a  standard  of  value :  in  other  words,  it  would 
be  money. 

12* 


138  EXCHANGE. 

We  learn  the  true  nature  of  money,  then,  from 
its  origin  and  the  functions  it  performs.  These 
offices  or  functions  we  must  examine  in  detail. 

1st.  As  a  medium  of  exchange.     This  mav  be 

O  «/ 

wholly  conventional.  Anything,  which,  by  general 
consent  or  in  obedience  to  law,  all  receive  in  ex- 
change, will  answer  the  purpose.  So  far  as  this 
function  is  concerned,  it  is  of  no  consequence 
whether  the  article  has  value  or  not:  safety  and 
convenience  are  the  only  considerations  of  impor- 
tance. Money,  in  this  respect,  is  simply  a  counter, 
token,  or  universal  equivalent. 

2d.  As  a  standard  of  value.  Value  is  not  con- 
ventional. It  attaches  to  all  objects  which  are  de- 
sired, but  cannot  be  had  without  effort  or  labor. 
Since  the  value  of  anything  is  its  power  in  exchange, 
we  say  that  nothing  is  valuable  which  will  not  com- 
mand labor,  or  that  which  costs  labor. 

"Value  implies  comparison,  appropriation,  estimation,  measure. 
In  order  that  two  things  should  measure  each  other,  it  is  necessary 
that  they  be  commensurable;  and,  in  order  to  that,  they  must  be 
of  the  same  kind." — BASTIAT. 

Therefore,  if  we  would  measure  value,  we  must 
use  an  article  that  has  value  in  it.  The  measure 
must  evidently  have  the  same  quality  as  the  thing 
to  be  measured, — weight  to  measure  weight,  length 
to  measure  length,  volume  to  measure  volume,  value 
to  measure  value. 

The  standard  must  be  as  nearly  invariable  as  pos- 
sible. An  absolutely  invariable  standard  is  unat- 
tainable, because  the  standard  itself  must  be  subject 
to  the  same  laws  as  the  objects  to  be  measured ; 


BARTER   AND   CURRENCY.  139 

that  is,  cost  of  production,  supply  and  demand,  etc. 
Hence  we  must  take  that  for  a  standard,  which,  on 
the  whole  and  in  the  long-run,  is  subject  to  the 
least  fluctuation.  Of  all  objects  of  this  kind,  we 
shall  see  that  the  precious  metals  are  the  least  liable 
to  great  and  violent  changes  in  value. 

In  examining  the  prin-ciple  of  barter,  we  were 
forced,  by  its  practical  difficulties,  to  accept  the  re- 
source of  a  universal  equivalent  for  all  commodities. 
This,  in  its  original  form,  is  money.  But  the  course 
of  civilized  industry  has  introduced  several  forms  of 
such  an  equivalent,  of  which  the  money,  by  which 
men  first  escaped  from  the  difficulties  of  barter,  is 
only  one.  All  these  forms  are  classed  as  currency; 
and  therefore,  in  discussing  the  instruments  of  ex- 
change, next  after  barter  we  come  to  the  subject 
of— 

CURRENCY. 

This  is  a  general  term  for  all  the  contrivances  by 
which  society  seeks  to  effect  a  general  exchange 
of  values,  and  discharge  pecuniary  obligations. 
There  are  four  distinct  kinds  or  species  of  cur- 
rency, each  differing  from  the  others  in  important 
particulars: 

1st.  The  first  of  these  instruments  is  called 
MONEY.  Any  article,  which,  having  a  universally 
recognized  value  in  itself,  all  persons  accept  as  an 
equivalent,  or  medium  of  exchange,  and  which, 
consequently,  becomes  the  standard  by  which  all 
other  values  are  measured  or  determined,  and  in 
which  all  pecuniary  obligations  are  expressed  and 
discharged,  is  money.  Being  composed  generally 


140  EXCHANGE. 

of  the  precious  metals,  it  is  often  known  as  "hard- 
money  currency,"  but  is  more  properly  a  value  cur- 
rency. 

2d.  The  second  kind  of  currency  consists  of 
written  promises,  made  usually  by  governments, 
to  pay  money  at  a  distant  or  indefinite  period, 
which  nevertheless,  by  force  of  law  or  other  cir- 
cumstances, are  accepted  as  money,  and  perform 
its  general  functions.  The  notes  issued  by  the 
treasury  of  the  United  States,  and  familiarly  known 
as  " greenbacks,"  now  in  circulation,  are  of  this 
description.  They  form  a  strictly  credit  currency, 
but,  in  common  parlance,  are  called  PAPER  MONEY. 

3d.  A  third  description  of  currency  is  formed  of 
written  promises  to  pay  specie  on  demand,  issued 
in  excess  of  the  actual  amount  of  specie,  or  money, 
in  possession  of  the  promisors  absolutely  held  for 
the  redemption  thereof.  These  notes  or  promises 
are  generally  issued  by  corporations,  called  bank- 
ing institutions,  and  circulate,  while  current,  as 
money,  performing  all  its  functions.  This  is  called 

a  MIXED  CURRENCY. 

4th.  A  fourth  kind  of  currency  consists  of  written 
promises,  payable  on  demand,  issued  by  responsi- 
ble parties,  for  the  payment  of  which,  in  full,  the 
specie  is  actually  held  in  trust  by  the  promisors. 
As  such  a  currency  is  precisely  adapted  to  all  the 
wants  of  the  trading  and  business  classes,  and  fully 
combines  convenience  with  safety,  the  two  great 
desiderata,  it  may  with  great  propriety  be  called  a 

MERCANTILE  CURRENCY. 

Of  the  four  kinds  of  currency,  it  will  be  observed, 
that  two,  the  first  and  fourth,  are  classed  as  value 


MONEY.  141 

currency;  the  second,  as  credit;  the  third,  as  mixed, 
consisting  of  value  and  credit. 

To  ohtain  a  clear  and  intelligent  view  of  the  sub- 
ject, it  is  therefore  quite  necessary,  that  we  divest  it 
of  all  its  usual  environments  and  associations,  and, 
for  the  time  being,  even  of  the  forms  and  terms 
with  which  we  are  familiar,  and  regard  the  question 
as  abstractly  as  possible. 


CHATTER    II. 

I.    MONEY. 

HAVING  examined  the  nature  and  functions  of 
currency,  we  shall  now  speak  of  the  actual  money 
of  commerce,  or  the  universally  accepted  equivalent. 

In  all  ages  and  countries,  this  has  consisted  of  the 
precious  metals,  gold  and  silver,  with  the  baser 
metals  or  alloys  for  fractional  purposes.  Local  cur- 
rencies have  been  various.  Lacedsemon  had  iron 
money.  The  Romans  are  supposed  by  many  to  have 
used  cattle  and  sheep  in  the  early  periods  of  their 
history ;  and  their  coins  bear  the  images  of  those 
animals,  as  indicating  their  value.  Tobacco  was 
once  currency,  and  a  legal  tender,  in  Virginia. 

The  first  currency  legally  established  in  Massa- 
chusetts was  bullets.  The  "  General  Courte  ordered 
[March  4,  1635]  tbat  bulletts  of  a  full  boare  shall 
passe  currently  for  a  farthing  a  peice,  provided  that 
noe  man  be  compelled  to  take  above  12d  at  a  time." 


142  EXCHANGE. 

Again,  it  was  enacted  "that  merchantable  beaver 
shall  pass  at  Xs  the  pound."  In  163T,  the  "  Courte 
ordered  that  Wampumpege  should  pass  at  six  for  a 
penny,  for  all  sums  under  12d."  In  1640  and  1641, 
additional  laws  were  enacted,  making  wampum  a 
lawful  tender. 

Many  expedients  like  these  have,  at  different 
times  and  in  different  countries,  been  adopted  to 
secure  a  temporary  and  partial  currency ;  but  from 
the  days  of  Abraham,  who  paid  "four  hundred 
shekels,  current  money  with  the  merchants,  for  the 
field  of  Ephron,"  to  the  present  time,  the  money 
used  in  commerce  has  always  been  composed  of 
gold  and  silver.  These,  and  these  only,  have  formed 
the  universal  medium  of  exchange  and  standard  of 
value 

The  use  of  these  metals  arises  from  nothing  con- 
ventional. No  international  agreement  was  ever 
made  respecting  them ;  yet  they  are  everywhere 
and  at  all  times,  without  hesitation,  received  in  ex- 
change for  whatever  any  one  may  wish  to  dispose 
of.  They  secure  their  currency  simply  by  their 
peculiar  adaptedness  to  the  purpose. 

What  these  peculiarities  are,  we  propose  now  to 
consider. 

1st.  They  possess  value,  that  is,  have  power  in  ex- 
change. They  cost  labor,  and  are  objects  of  desire. 
They  cannot  be  had  without  labor,  or- an  equivalent. 
They  are  subject  to  all  the  laws  of  value  as  truly  as 
wheat  or  any  other  commodity. 

2d.  These  metals  are  stable  in  value;  that  is,  the 
most  so  of  known  commodities.  They  are  subject 
to  no  violent  changes,  like  flour  or  cotton :  for  ex- 


MONEY.  143 

ample,  wheat  often  varies  from  twenty-five  to  fifty 
per  cent,  in  a  few  months.  They  change  in  value, 
indeed,  from  age  to  age;  but  so  gradually  is  this 
accomplished  as  to  he  quite  imperceptible  at  the 
time. 

3d.  They  are  conveniently  portable;  the  most  so,  in 
fact,  of  all  commodities  existing  in  adequate  quan- 
tity. 

4th.  These  metals  are  malleable.  They  can  be 
wrought  into  any  shape,  will  receive  and  retain  any 
impression,  may  be  divided  into  the  minutest  quan- 
tities, and  again  united,  with  the  smallest  possible 
loss. 

5th.  They  are  of  uniform  quality.  Gold  and  silver 
are  always  and  everywhere  the  same.  Found  in  Cali- 
fornia, Australia,  or  Russia,  gold  is  everywhere  gold. 

6th.  They  may  be  readily  alloyed  or  refined.  By 
alloy  they  are  made  harder,  and  so  adapted  to  use 
as  rnone}7.  However  alloyed,  they  can  easily  be 
restored  to  their  original  purity  without  loss. 

7th.  They  are  indestructible  by  accident.  Fire  does 
not  consume  them  ;  atmospheric  influences  cause  no 
decomposition:  so  that  the  gold  and  silver  in  use 
in  the  time  of  the  Ptolemies  may  form  a  part  of  the 
currency  of  the  world  to-day. 

8th.  They  are  universally  appreciated.  The  precious 
metals  are  regarded  as  beautiful  and  desirable  in  all 
countries,  and  among  all  races,  civilized  or  savage. 
The.  demand  for  them  is  without  limit. 

9th.  They  are  generally  diffused.  These  metals  are 
found  in  every  principal  section  of  the  globe, — Eu- 
rope, Asia,  Africa,  North  and  South  America,  and 
Australia. 


144  EXCHANGE. 

10th.  They  are  sufficiently  plentiful.  Not  more  than 
two-thirds  of  the  gold  and  silver  now  in  the  posses- 
sion of  man  is  believed  to  be  used  as  money,  the 
balance  being  in  plate  or  other  objects  of  utility  and 
ornament. 

llth.  They  are  nearly  inconsumable  by  use.  The  use 
of  almost  all  other  commodities  causes  their  rapid 
destruction.  Articles  used  as  food  or  clothing,  for 
example,  disappear  entirely  in  a  comparatively  short 
period.  Even  iron,  as  used  for  most  purposes, — in 
railroads,  agriculture,  the  mechanic  arts,  etc., — lasts 
only  a  few  years.  With  gold  and  silver  it  is  quite 
different,  though  the  exemption  from  waste  is  more 
remarkable  in  the  case  of  gold.  Indeed,  its  ordinary 
and  principal  use  can  scarcely  be  called  consump- 
tion, it  is  so  gradual. 

It  has  been  ascertained,  from  data  carefully  ob- 
tained in  the  Bank  of  England,  that  gold  in  coin 
loses  only  4-16  per  cent,  in  one  hundred  years,  or 
about  one  per  cent,  in  twenty- live  years. 

Investigations  made  at  the  United  States  Mint,  as 
by  Report  of  1862,  showed  that  the  wear  and  tear  of 
gold  and  silver  used  as  coin  was  only  as  1  to  2400; 
that  is,  it  cost  but  one  dollar  to  keep  2400  dollars  in 
circulation.  Gold  half-eagles  only  as  1  to  3500  per 
annum. 

When  used  for  gilding  and  similar  purposes,  it  is 
much  more  rapidly  consumed ;  but  the  amount  so 
employed  is  very  small,  in  comparison  with,  the 
whole  mass.  When  used  in  plate,  the  consumption 
is  even  less  than  in  coin ;  and  a  larger  part  of  that 
which  goes  into  jewelry  returns  into  bullion  in  the 
lapse  of  time. 


MONEY.  145 

COINAGE. 

Having  seen  how  admirably  adapted  the  precious 
metals  are  for  use  as  money,  we  pass  to  a  considera- 
tion of  those  artificial  arrangements  by  which  they 
are  still  further  and  more  completely  fitted  for  that 
purpose. 

At  first  these  metals  were  used  in  ingots  and  bars, 
and  passed  by  weight.  Whenever  a  pecuniary 
transaction  was  made,  scales  were  required  to  deter- 
mine the  quantity  given  in  exchange.  This  was  a 
clumsy  and  imperfect  mode  of  payment;  for  there 
would  arise  the  question  of  quality  as  well  as  quan- 
tity,— of  the  pureness  or  fineness  of  the  metal.  This 
could  only  be  ascertained  by  assay;  and  that  could 
be  accomplished  only  by  persons  having  the  neces- 
sary knowledge  of  metallurgy,  with  apparatus  for 
conducting  the  process. 

It  was  therefore  natural,  that,  at  an  early  period, 
a  contrivance  was  hit  upon  which  obviated  all  diffi- 
culties. The  bars,  or  ingots,  designed  for  money, 
were  first  assayed,  and  made  of  one  degree  of  fine- 
ness. This  degree  was  called  the  standard.  The 
metal  thus  assayed  was  then  divided  into  pieces,  and 
the  weight  carefully  ascertained,  and  stamped  upon 
each.  These  pieces  were  called  coins;  the  process, 
coinage.  As  this  coinage  involved  great  responsi- 
bility, it  very  properly  became  the  duty  and  pre- 
rogative of  the  government.  Each  government 
established  an  institution  for  the  purpose,  called  a 
mint.  To  these  mints  the  people  carried  their  gold 
and  silver,  and,  by  paying  a  very  trifling  seigniorage, 
had  the  whole  amount  returned  to  them  in  coin. 

13 


146  EXCHANGE. 

Such  is  the  character  of  a  currency  composed  en- 
tirely of  money,  or  that  which  has  value  in  itself. 
Of  all  subjects,  this  is  one  of  the  most  simple,  most 
free  from  all  complexity  and  mystery.  No  one  can 
fail  to  understand  it.  Government  has  not  the 
slightest  occasion  to  interfere  with  or  regulate  it. 
It  obeys  certain  natural  laws,  which  cannot  be  im- 
proved by  man.  All  that  government  can  usefully 
do  is  to  certify  to  the  weight  and  fineness  of  the 
coinage.  It  has  no  further  concern  with  money. 

The  main  point  to  be  borne  in  mind,  in  relation 
to  coinage,  is,  that  government  does  not  determine 
the  value  at  all,  but  simply  certifies  to  the  weight 
and  purity. 


CHAPTER    III. 

II.    CREDIT    CURRENCY. 

THIS  we  have  already  stated  to  consist  of  the 
promises  of  government  to  pay  money,  which,  by 
force  of  law  or  the  necessities  of  the  people,  are  re- 
ceived as  money.  It  is  simply  the  credit  of  the 
nation,  used  as  currency.  The  element  of  value  does 
not  enter  into  it  at  all.  It  is  precisely  the  opposite 
of  a  value  currency. 

CHARACTERISTICS    OF   CREDIT   CURRENCY. 

Such  a  currency  may  transfer  debts,  but  it  cannot 
pay  them.  The  creditor  may  accept  the  promises 
of  the  government  in  place  of  that  of  an  individual, 
but  he  receives  no  value.  So  far  as  issued  by  the 


CREDFT    CURRENCY.  147 

government  and  accepted  for  taxes  and  other  public 
dues,  such  notes  are  mere  counters,  used  for  cancel- 
ling reciprocal  obligations.  If  such  notes  are  issued 
beyond  the  natural  volume  of  the  currency,  they 
can  never  be  kept  at  par  with  specie,  or  circulate  at 
their  nominal  value.  Gold,  as  compared  with  them, 
will  bear  a  premium,  the  amount  of  which  will  indi- 
cate the  excess  and  depreciation  of  the  currency. 

This  premium  is  the  result  of  the  operation  of  the 
laws  of  value  ;  and  no  legislation  of  free  government 
or  edict  of  despotism  can  permanently  change  it. 
Governments  might  as  well  prescribe  the  height  to 
which  the  tides  of  ocean  shall  rise,  as  to  restrict  or 
reduce  the  premium  on  gold. 

Such  legislation  is  not  only  futile,  but  injurious, 
producing  an  effect  just  opposite  to  that  intended. 
It  disturbs  the  market  price  of  gold,  destroys  confi- 
dence in  its  actual  price,  and,  by  exciting  distrust, 
drives  the  premium  far  up  beyond  its  natural  limit. 

The  experiment  made  by  the  Congress  of  the 
United  States  in  1864  showed  most  conclusively  the 
utter  folly  of  attempting  to  interfere  with  the  laws 
of  value.  After  the  "gold  bill,"  so  called,  became 
a  law,  the  premium  rose  at  once  some  fifty  per  cent, 
above  its  previous  rate.  The  unwise  act  was  speedily 
repealed,  and  the  excessive  premium  it  had  caused 
fell  off. 


EFFECT  OF  CREDIT   CURRENCY  ON  PRICES  AND  INCOMES. 

A  general  rise  of  prices  follows  the  introduction 
of  a  credit  currency,  because  it  is  always  issued  in 
excess  of  the  natural  volume  of  money;  and  conse- 


148  EXCHANGE. 

quently,  as  prices  must,  in  the  average,  conform  to 
the  quantity  of  currency,  they  will  advance  as  it  is 
increased.  It  is  quite  idle  to  attempt  to  evade  the 
operation  of  this  law.  When  the  Secretary  of  the 
United  States  Treasury  endeavored  to  "  float"  his 
bonds  by  the  issue  of  credit  currency,  he  unfortu- 
nately "  floated"  all  the  merchandise  of  the  country 
at  the  same  time,  so  that  the  rise  of  prices  compelled 
him  to  pay  double  for  all  the  government  needed ; 
and  hence  he  lost  at  least  one-half  of  all  the  bonds 
that  were  thus  sold. 

The  effect  on  fixed  incomes  is  very  marked.  From 
whatever  source,  fixed  incomes  are  depreciated  in 
value  just  in  proportion  to  the  depreciation  of  the 
currency. 

EFFECT   ON   CONTRACTS. 

A  credit  currency,  it  may  be  safely  assumed,  is 
always  redundant;  and,  as  such,  its  effect  on  con- 
tracts is  twofold.  Obligations  to  pay  money  made 
with  a  specie  standard,  and  paid  with  credit  cur- 
rency, will  impose  a  loss  of  value  on  the  creditor 
equal  to  the  depreciation  of  the  currency. 

On  the  other  hand,  contracts  made  to  pay  money 
during  the  existence  of  a  credit  currency,  but  which 
mature  and  are  discharged  under  a  value  currency, 
will  subject  the  debtor  to  the  loss  of  all  the  differ- 
ence in  the  value  of  the  two  currencies.  Great  in- 
justice and  suffering  resulted  from  this  source,  on 
the  recognition  of  American  independence,  in  the 
last  century,  among  the  first  of  which  may  be  reck- 
oned the  Shay's  Rebellion  of  Massachusetts. 


CREDIT   CURRENCY.  149 

Historically,  it  is  found  to  be  true,  that  a  credit 
currency  has  never  yet  been  kept  within  the  natural 
limit  of  the  value  currency  of  the  country  in  which 
it  was  established.  The  "  continental  money"  of 
the  American  Revolution;  the  assignats  of  the 
French  Revolution ;  the  bank  money  of  England 
during  the  Napoleonic  wars;  and,  lastly,  the  green- 
backs, or  treasury  notes,  issued  during  the  late 
Rebellion,  and  the  present  paper  currency  of  Rus- 
sia and  Austria,  are  illustrations  in  point. 

A  credit  currency  never  has  been  regulated  in 
such  a  manner  as  to  keep  it  on  a  par  with  specie, 
and  probably  never  will  be.  The  necessities  of 
government  are  so  pressing  that  the  temptation  to 
increase  the  amount  becomes  too  great  for  resist- 
ance. As  prices  rise  in  consequence,  the  currency 
becomes  of  less  and  less  value,  that  is,  has  a  decreas- 
ing power  in  exchange,  so  that  the  inducement  to 
issue  becomes  continually  stronger  as  the  volume 
expands. 

But  the  issue  of  a  legal-tender  credit  currency  is, 
under  any  circumstances,  a  great  wrong,  and  can 
never  be  justified  except  in  the  most  extreme  cases 
of  national  peril ;  and,  even  in  those  instances  where 
it  has  been  defended  as  an  indispensable  measure, 
events  have  generally  prove'd  it  to  have  been  a  mis- 
taken and  short-sighted  policy. 

CREDIT  CURRENCY  A  FORCED  LOAN. 

When  a  government  issues  its  notes  as  currency, 
and  makes  them  a  legal  tender,  or  authorizes  other 
parties  to  do  so,  it  creates  a  forced  loan. 

13* 


150  EXCHANGE. 

All  creditors  are  compelled  to  receive  these  notes 
for  whatever  may  be  due  to  them,  which  is  equiva- 
lent to  making  a  loan  to  the  government  to  the 
amount  so  received ;  and  those  who  sell  their 
property  are  obliged  to  take  these  promises,  since 
there  is  no  other  currency  in  use,  so  that  the  whole 
amount  thus  put  into  circulation  becomes  a  com- 
pulsory loan  to  the  government. 

CREDIT    CURRENCY   A    DIRECT   TAX. 

As  soon  as  legal-tender  credit  notes  begin  to  de- 
preciate in  value,  or,  in  other  words,  as  soon  as  com- 
modities rise  in  consequence,  each  person  who  re- 
ceives them  pays  a  tax  equal  to  their  depreciation. 
For  example,  if  he  receives  a  ten-dollar  note,  which 
will  bring  him  but  eight  dollars'  worth  of  merchan- 
dise at  the  gold  price,  he  has  contributed  two  dol- 
lars to  the  government.  So,  of  course,  with  all 
who  receive  notes  in  payment  for  debts  contracted 
prior  to  the  issue  of  such  currency. 

For  illustration,  the  government  issues  one  hun- 
dred millions  of  its  notes  at  first;  and  for  this,  as 
prices  have  not  been  raised,  it  receives  an  equal 
amount  in  value.  It  issues  a  second  hundred  mil- 
lions ;  but  prices  have  advanced  in  consequence  of 
the  first  issue,  we  will*  suppose,  fifty  per  cent.,  so 
that  the  government  gets  but  $66,666,666  in  value. 
A  third  issue  is  made  of  one  hundred  millions;  but 
prices  have  gone  up  one  hundred  per  cent.,  and 
the  government  gets  but  fifty  millions  in  value. 
Another  issue  of  one  hundred  millions  carries 
prices  up  to  one  hundred  and  fifty  per  cent,  and 
only  forty  millions  is  realized  in  value.  This  is  not 


MIXED    CURRENCY.  151 

intended  as  a  statement  of  the  precise  fact,  but  to 
exhibit  the  natural  operation  of  such  issues,  and 
shows  the  operation  or  general  result  upon  the  com- 
munity of  a  credit  currency  as  a  direct  tax  :  but  the 
effects  upon  different  individuals  are  diversified  in 
every  possible  manner;  one  man  losing,  another 
gaining  by  it,  according  to  the  position  in  which 
the  parties  are  found  at  the  time  they  were  com- 
pelled to  accept  such  a  currency  instead  of  money. 
The  laws  of  value  having  been  violated,  universal 
chaos  in  all  monetary  affairs  is  the  inevitable  conse- 
quence. 

The  final  result  of  the  issue  of  an  inconvertible 
currency,  then,  is,  that,  if  it  is  never  redeemed,  the 
taxation  it  imposes  is  most  unequally  and  unjustly 
distributed;  if  it  is  finally  paid,  then  the  taxation 
is  not  only  unfairly  distributed,  but  the  amount 
vastly  increased,  since  the  expenditures  of  the  gov- 
ernment have  been  largely  enhanced  by  it. 


CHAPTER    IV. 

III.      MIXED     CURRENCY. 

MIXED  currency  is  a  modern  invention,  as  yet 
known  only  to  a  small  part  of  the  human  race,  and 
but  partially  understood  even  in  those  countries 
into  which  it  has  been-introduced. 

The  Bank  of  England,  the  parent  of  all  mixed- 
currency  institutions  throughout  the  world,  was 


152  EXCHANGE. 

established  in  1694;  but  its  operations  were  so 
limited,  and  its  influence  so  partially  felt,  during 
the  first  century  of  its  existence,  that  the  character 
of  the  currency  it  issued  was  hardly  appreciated. 
This  bank  made  a  grand  suspension  in  1796,  and 
continued  in  that  state  for  over  twenty-three  years. 
This  was  the  first  occurrence  which  demonstrated 
practically  the  true  nature  of  this  kind  of  currency. 

If  we  carefully  observe  the  composition  of  a 
mixed  currency,  we  shall  find  it  to  consist  of 
promissory  notes  issued  by  individuals  or  corpora- 
tions legally  authorized  to  do  so,  in  excess  of  the 
actual  specie  held  for  their  redemption. 

This  is  rightfully  called  a  mixed  currency,  because 
it  is,  in  fact,  composed  in  part  of  value  and  in  part 
of  credit.  So  far  as  specie  is  held  for  the  payment 
of  these  notes,  this  kind  of  currency  is  actually  con- 
vertible, and  equivalent  to  money;  but,  in  so  far  as 
the  credit  element  exceeds  the  specie,  it  is  only  a 
promise  to  pay  money,  and  is  really  inconvertible. 
It  is  the  proportion  of  specie,  whatever  it  may  be, 
which  determines  the  quality  of  this  kind  of  bank- 
note circulation.  Its  quality  is  the  great  question 
of  interest  to  all  who  use  this  kind  of  currency; 
and  of  that  we  propose  now  to  speak. 

THE  QUALITY  OF  A  MIXED  CURRENCY. 

This  is  by  far  the  most  important  matter  in  rela- 
tion to  a  mixed  currency.  What  is  the  proportion 
of  specie  held  for  its  conversion?  To  ascertain  this, 
we  must  know,  on  the  one  hand,  the  amount  of 
notes  in  circulation,  and  the  inscribed  credits,  that 


MIXED    CURRENCY.  153 

is,  the  deposits;  and,  on  the  other,  the  amount  of 
specie  in  bank.  We  have  naught  to  do  with  any 
other  inquiry,  so  far  as  the  quality  of  the  currency 
is  concerned.  We  have  no  occasion  to  make  such 
an  inquiry  in  regard  to  money,  for  that  has  value  in 
itself,  and  needs  no  conversion ;  nor  in  relation  to  a 
purely  credit  currency,  for  that  does  not  profess 
convertibility;  but  a  mixed  currency,  to  be  reliable 
and  beneficial  to  the  public,  must  be  what  it  pro- 
claims itself  to  be;  viz.,  convertible  on  demand  into 
coin. 

And  here  it  is  necessary  to  distinguish  carefully 
between  the  convertibility  and  the  redeemableness 
of  a  currency.  The  first  may  be  uncertain  or  im- 
possible, while  the  last  may  be  sure.  A  bank  may 
be  perfectly  solvent,  while  its  currency  is  almost 
entirely  inconvertible. 

For  example,  a  bank  has  promised  to  pay  one 
hundred  thousand  dollars  in  specie,  while  it  has 
only  ten  thousand  dollars  to  pay  with.  The  same 
bank  has  demands  against  individuals,  for  their 
notes  discounted,  to  the  amount  of  two  hundred 
thousand  dollars.  Now,  it  is  certain  that  this  bank 
can  convert  only  ten  thousand  dollars  of  its  bills; 
but  it  can,  if  sufficient  time  is  allowed,  redeem  the 
whole  amount,  by  taking  in  its  own  notes  in  ex- 
change for  those  of  its  debtors.  The  power  of  the 
bank  ultimately  to  redeem  or  cancel  its  notes  may 
be  amply  sufficient;  though,  for  the  conversion  of 
them  into  specie,  it  has  the  ability  only  to  the  ex- 
tent of  one-tenth. 

A  bank-note  converted  into  coin,  the  money  still 
exists  in  circulation:  a  bank-note  redeemed  by  re- 


154  EXCHANGE. 

ceiving  it  for  indebtedness  to  the  bank,  is  taken  out 
of  circulation ;  that  is,  it  ceases  to  be  currency,  and, 
for  the  time  being,  is  practically  annihilated.  The 
circulating  medium  of  the  country  is  diminished  to 
that  extent.  This  is  the  one  great  defect  of  a  mixed 
currency. 

To  illustrate  this  point,  and  show  how  much  de- 
pends upon  the  quality  or  convertibility  of  a  mixed 
currency,  we  propose  to  take  that  of  the  United 
States  as  an  example.  In  doing  this,  it  will  be 
indispensable  that  we  refer  to  the  statistics  of  bank- 
ing institutions,  and  use  the  terms  commonly  em- 
ployed by  them ;  and  therefore  we  now  proceed  to 
define  them. 

LIABILITIES    OF  A   MIXED-CURRENCY    BANK. 

1.  Capital  Stock.— This  is  the  sum  total  of  all  the 
amount  paid  into  the  bank,  to  constitute  its  means 
of  doing  business. 

2.  Circulation. — This  consists  of  notes  of  the  bank, 
of  different   denominations,   payable   on    demand, 
signed   by  its   officers,  and   issued   to  circulate  as 
money. 

3.  Deposits. — These  include  all  sums,  from  what- 
ever soqrce,  that  stand  on  the  books  of  the  banks  to 
the  credit  of  individuals.     They  are  properly  called 
inscribed  credits:    they  are   nothing   more   or   less. 
They  are  all  legally  payable  on  demand,  in  specie, 
to   those  persons  in  whose  names  they  stand.     A 
more   full  description   of  their  nature  and    effects 
will  be  given  hereafter. 

Bank  Balances. — "Due  to  other  banks"  and  "due 


MIXED    CURRENCY.  155 

from  other  banks"  are  terms  used  in  the  official  re- 
turns made  to  the  Treasury  Department  of  the 
United  States. 

They  explain  themselves.  Banks,  like  individuals, 
have  open  accounts  with  each  other.  These,  in  the 
aggregate,  must  balance  each  other;  but  there  is 
often  a  considerable  apparent  difference,  arising 
from  the  fact  that  large  sums  are  constantly  in 
transitu. 

As  affecting  the  character  of  a  mixed  currency, 
these  balances  are  an  important  item,  because  they 
form  the  most  explosive  and  dangerous  element. 
They  are  "deposits"  in  their  nature,  certain  to  be 
drawn  in  any  sudden  emergency.  This  was  strik- 
ingly illustrated  in  the  autumn  of  1857.  At  that 
time,  the  banks  in  the  city  of  Xew  York  owed 
some  sixty  millions  of  dollars  which  had  been  left 
with  them  by  distant  banks  in  order  to  meet  their 
own  liabilities.  When  the  pressure  came  on,  in 
September  and  October  of  the  year  mentioned, 
these  banks  began,  of  necessity,  to  call  in  their 
balances. 

This  placed  the  New  York  banks  in  a  position 
of  great  difficulty.  To  answer  these  calls  would 
require  a  large  part  of  all  their  means;  while,  at 
the  same  moment,  the  merchants  and  business  men 
of  the  city  needed  all  the  resources  they  could  com- 
mand. But  the  banks  must  meet  the  drafts  made 
for  their  balances,  or  suspend  at  once;  and,  accord- 
ingly, were  compelled  to  cut  off  all  discounts,  or 
loans,  to  their  regular  customers.  This  state  of 
things  could  not  be  long  endured;  and  the  mer- 
chants of  the  city,  being  soon  driven  to  despera- 


156  EXCHANGE. 

tion,  began  to  draw  upon  their  own  deposits  for 
specie;  and  thus  a  general  suspension  took  place, 
not  only  in  the  commercial  .metropolis,  but  through 
the  country. 

These  balances,  as  they  exist  extensively  in  all 
great  cities,  form  the  train  that  ignites  the  magazine, 
and  causes  an  instant  and  general  explosion.  The 
Bank  of  England  was  compelled,  in  1847,  to  obtain 
a  suspension  of  the  act  of  1844,  by  the  threat  of  the 
banking  houses  to  withdraw  their  balances,  and  again 
in  1857,  and  1866. 

Other  Liabilities. — These  consist  of  various  obliga- 
tions, which  banks  incur  in  the  course  of  their 
transactions  with  the  public  and  each  other.  They 
are  not  large  compared  with  their  aggregate  liabil- 
ities, but  must  be  taken  into  the  account.  They 
may  be  immediate  or  remote  liabilities,  but  are 
mostly  immediate. 

RESOURCES   OF   A    MIXED-CURRENCY   BANK. 

Loans. — This  item  includes  the  sum  total  due  the 
bank  from  its  customers  for  discount  and  advances, 
and  for  which  the  banks  hold  notes  or  other  obliga- 
tions, payable  at  some  future  time;  say,  from  one 
day  to  four  or  six  months,  as  the  case  may  be. 

Stocks. — Banks  are  large  purchasers  of  the  various 
national  and  State  stocks,  and  also  those  of  towns, 
cities,  railroad  companies,  etc. 

Heal  Estate. — A  place  of  business  being  indispen- 
sable to  the  operations  of  banking,  buildings  are 
erected  for  such  purposes.  These;  being  often  be- 
yond the  needs  of  the  bank,  are  rented  in  part. 


MIXED   CURRENCY.  167 

Other  Investments. — A  general  term  that  includes 
all  kinds  of  property  the  bank  may  hold,  from  neces- 
sity or  choice,  not  embraced  in  any  preceding  title. 
Notes  of  other  Banks. — As  banks,  in  the  course  of 
business,  are  constantly  receiving  each  other's  notes, 
they  must  necessarily  have,  in  the  aggregate,  a  large 
amount,  which  appear  among  their  assets.  Notes 
thus  held  in  no  essential  particular  aftect  the  general 
character  of  the  currency  :  they  only  concern  the 
relations  of  the  banks  to  each  other. 

Cash  Items. — Many  banks  have  the  practice  of 
reckoning  certain  assets  they  hold  as  equivalent  to 
cash,  and  class  them  as  "cash items"  in  their  returns. 
For  example,  a  bank  may  hold  a  check  upon  another 
bank  for  a  given  sum,  which,  in  its  account  with  that 
bank,  and  for  many  other  purposes,  may  be  equally 
available  for  the  time  being,  with  money  actually  in 
hand.  Checks  drawn  by  individuals  on  other  banks, 
foreign  exchange,  sight  drafts,  and  the  like,  are  often 
reckoned  among  these  items.  But,  whatever  their 
origin  or  character,  they  add  in  no  degree  to  the 
strength  of  the  currency.  They  may  help  the  indi- 
vidual bank  that  holds  them,  as  compared  with  the 
debtor  banks,  but  not  the  general  mass. 

Undivided  Profits. — Such  an  item  appears  in  the 
returns  published  by  the  general  government,  and 
is  of  considerable  importance.  In  most  banks,  it  is 
customary  to  reserve  a  certain  sum  from  the  profits 
of  each  year,  to  insure  against  unexpected  losses  or 
contingencies.  In  some  cases,  this  reserve  is  large; 
in  others,  small.  It  is,  for  the  time  being,  an  in- 
crease of  banking  capital,  but  adds  nothing  to  the 
convertibility  of  current  notes. 

14 


158  EXCHANGE. 

With  this  explanation  of  the  terms  employed,  we 
proceed  to  give  such  statistics  of  the  banks  of  the 
United  States  as  shall  exhibit  the  character  of  the 
currency  they  issue. 

The  first  point  to  be  noticed  is  the  aggregate  capi- 
tal of  these  banks,  which  we  find  to  be  $421,880,095, 
on  the  1st  of  January,  1860.  We  have  selected  that 
point  of  time,  because  the  country  was  then  undis- 
turbed, and  the  currency  in  its  natural  condition. 
This  capital,  as  we  have  already  explained,  is  the 
amount  which  the  banks  have  at  their  command, 
and  which  it  is  their  business  to  loan  out  to  the 
public;  and,  let  it  be  recollected,  this  is  all  which 
they  can  loan,  except  their  own  CREDIT,  issued  in 
the  form  of  bank-notes,  or  inscribed  in  their  books 
as  "deposits,"  in  exchange  for  the  notes  of  indi- 
viduals or  business  firms  and  corporations. 

The  next  point  to  be  noticed  is  the  aggregate  of 
all  the  assets  or  property  of  these  banks ;  and  by 
ascertaining  this,  and  subtracting  therefrom  the 
capital,  as  before  stated,  we  shall  find  to  what  ex- 
tent the  banks  have  loaned  their  credit,  and,  of  course, 
to  what  extent  credit  enters  into  the  currency.  The 
statistics  which  show  this  present  the  following 
result : 

The  entire  property  in  possession  of  the  banks,  at 

this  time,  was $887,789,762 

From  which  deduct  the  aggregate  capital       .     .     .       421,880,095 

Total  Credit  issued  by  the  banks $465,909,667 

On  this  amount  the  banks  were  receiving  interest, 
or  income  beyond  that  received  for  their  actual 
capital. 

This  "total  credit"  issued  by  the  banks  was — 


MIXED    CURRENCY.  159 

Its  circulation $207,102,447 

Deposits 253,802,129 

Total  currency $460,904,576 

The  remarkable  difference,  then,  between  the 
capital  of  the  banks  and  their  property  in  possession, 
is  the  first  thing  to  be  noticed  in  regard  to  the  mixed- 
currency  system,  because  it  shows  how  it  is  that 
large  profits  may  be  made  upon  mixed-currency 
banking.  Interest  is  obtained  upon  twice  the  amount 
of  actual  capital.  This  income,  however,  is  not  uni- 
formly distributed  among  the  banks  acting  under 
the  system.  Some  obtain  more  ;  others,  less. 

"We  also  see  why  it  is  that  such  banks  must  be 
constantly  desirous  of  increasing  their  loans,  by 
issuing  their  own  credit  in  the  shape  of  circulation 
and  deposits.  The  more  they  can  get  out,  the 
larger  the  income.  This  is  the  motive  power  that 
insures  the  constant  expansion  of  a  mixed  currency 
to  its  highest  possible  limit.  The  banks  will  always 
increase  their  indebtedness  when  they  can,  and  only 
contract  it  when  they  must. 

These  facts  show,  too,  why  a  mixed  currency 
exists  at  all ;  viz.,  because  those  who  create  it  make 
a  profit  both  on  their  capital  and  credit,  and  as  much 
on  the  latter  as  the  former. 

But  still  another  view  of  the  currency  is  necessary, 
to  show  the  preponderance  of  the  credit  over  the 
value  element  in  the  actual  currency : 

I860.  Circulation,  as  before $207,102,477 

Deposits 253,802,129 

Whole  currency $460,904,606 

Specie,  or  value 83,594,537 

Pure  credit " $377,310,069 


160  EXCHANGE. 

This  will  give  eighteen  cents  and  one  mill  on  the 
dollar  as  the  value  element,  and  eighty-one  cents  and 
nine  mills  as  the  credit  element,  in  the  entire  cur- 
rency; credit  being  to  value  as  more  than  five  to  one. 

But  yet  another  view  of  the  system  is  necessary, 
if  we  would  understand  the  true  position  of  the 
banks  in  relation  to  each  other,  in  case  of  an  actual 
demand  for  specie,  occasioned  by  want  of  confidence 
or  demand  for  exportation. 

Immediate  liabilities  of  the  banks  of  the  United 
States,  1860: 

Circulation $207,102,477 

Deposits        253.802,129 

Due  other  banks    ...     T  ....         55,932,918 

Other  liabilities 14,661,815 

$531,499,339 

Immediate  resources : 

Specie $83,594,537 

Cash  items 19,331,521 

Notes  of  other  banks 25,502,567 

Due  by  other  banks 67,235,457 

195,664,082 

Excess  of  immediate  liabilities  over  immediate  re- 


sources   $335,735,257 


CONVERTIBILITY.          - 

From  this  statement  we  perceive  the  real  position 
of  the  banks  in  regard  to  the  convertibility  of  their 
currency.  They  owed  on  demand  $335,735,257, 
which  they  had  no  immediate  means  in  their  pos- 
session to  meet ;  but  they  held  the  following  assets, 
or  ultimate  resources: 


MIXED    CURRENCY.  161 

Loans $691,945,580 

Stocks 70,344,343 

Keal  estate 30,782,131 

Other  investments 11,123,171 


Total $804,195,225 

After  deducting  the  excess  of  immediate  liabilities, 

as  above 335,735,257 

Surplus $468,459,968 

This  would  seem  a  sufficiently  large  margin  to  guar- 
antee the  ultimate  redemption  of  the  bank  currency ; 
but  does  it  secure  its  immediate  CONVERTIBILITY? 
That  is  the  point;  and  the  answer  must  depend 
upon  the  question,  whether  the  banks  can  realize 
from  their  assets  (loans  mainly)  as  fast  as  the  redemp- 
tion of  their  deposits  and  notes  may  be  called  for. 
If  not,  they  must  suspend.  Their  loans  are  on  time, 
from  one  day  to  six  months  ahead,  and  therefore 
may  not  be  actually  due,  so  fast  as  the  necessities  of 
the  banks  may  require;  but,  even  if  they  should 
mature  fast  enough,  the  practical  question  would 
still  arise,  whether,  if  the  banks  take  in  their  notes 
and  refuse  to  put  them  out  again,  and  decline  to 
make  their  usual  loans,  as  in  the  emergency  of  a 
large  demand  for  specie  they  certainly  must,  how  will 
it  be  possible  for  the  debtors  of  the  banks  to  'meet 
their  payments?  If  the  banks  could  stop  their 
loans  just  when  they  pleased,  they  might  perhaps 
save  themselves  from  dishonor;  but  they  cannot  do 
this,  because,  unless  they  continue  to  make  dis- 
counts, their  customers  will  certainly  fail,  since  they 
rely  upon  discounts  to  meet  their  obligations  as  they 
become  due;  therefore  they  suspend,  and  then  ex- 
tend, their  loans. 


162  EXCHANGE. 


CHAPTER   Y. 

ANALYSIS   OF   DEPOSITS. 

OUR  analysis  of  mixed  currency  will  be  far  from 
complete,  if  we  do  not  give  a  full  description  of  the 
origin  and  character  of  what  are  called  deposits,  as 
forming  an  element  most  dangerous  to  such  a  cur- 
rency, and  generally  very  mysterious  in  the  popular 
understanding.  To  the  popular  mind,  the  term 
"  deposits"  conveys  an  impression  directly  opposite 
to  the  truth.  They  are  supposed  to  be  actual 
money  or  capital  in  possession  of  the  banks,  while 
they  are  in  fact  debts  which  the  banks  owe  to  their 
customers  on  demand. 

In  the  currency  of  the  United  States,  deposits 
constitute  the  largest  item,  considerably  exceeding 
the  circulation. 

The  nature  of  these  deposits  has,  until  within  a 
very  few  years,  been  a  matter  of  serious  disagree- 
ment among  those  who  ought  to  be  well  acquainted 
with  their  nature  and  effects.  To  present  the  sub- 
ject in  such  a  light  that  it  shall  be  clearly  under- 
stood, we  must  carefully  examine  it  in  all  its  details. 

First.  What  are  deposits?  We  have  already  de- 
fined them  as  credits  given  to  individuals  in  the 
books  of  the  banks,  for  which  they  are  authorized 
by  law  to  demand  the  specie.  They  indicate  what 
the  banks  owe  on  account. 


ANALYSIS    OF  DEPOSITS.  163 

Secondly.  How  do  they  arise  ?     In  various  ways. 

1.  A  customer  may  deposit  coin,  and  have  the 
amount  passed  to  his  credit.     The  proportion  thus 
deposited   is   infinitesimally  small,  compared  with 
the  aggregate  deposits. 

2.  He  may  deposit  checks,  drawn  by  himself  or 
others,  on  other  banks. 

3.  He  may  deposit  the  notes  of  the  same  or  other 
hanks. 

4.  He  may  deposit  the  notes  of  individuals,  or 
bills  of  exchange  running  to  maturity;  and,  when 
they  are  collected,  the  amount  will  be  passed  to  his 
credit. 

5.  The  customer  may  get  his  own  notes,  or  the 
notes  of  others,  discounted  at  the  bank,  and  the 
amount  is  passed  to  his  credit ;  and  this  last  is  the 
origin  of  the  greater  part  of  all  deposits. 

Of  these  different  kinds  of  deposits,  it  will  be 
observed  that  only  one,  and  that  a  small  one,  was 
in  specie ;  and  yet  the  bank  has  promised  to  pay 
specie  on  demand  alike  for  all.  But  it  must  be  ob- 
served, that,  while  all  these  stand  legally  on  the 
same  basis,  as  a  matter  of  fact  they  are  practically 
held  by  the  banks  upon  different  conditions,  ex- 
pressed or  implied.  They  may  be  divided  into  three 
kinds  : 

First.  Permanent  or  compulsory  deposits,  made 
by  business  men  wishing  for  bank  accommodations, 
in  order  to  secure  larger  loans. 

Second.  Fiduciary  or  trust  deposits,  made  wholly 
for  temporary  safe  keeping,  by  executors,  guardians, 
treasurers  of  corporations,  etc.,  who  are  receiving 
funds  to  be  paid  out,  or  invested  at  a  future  period. 


EXCHANGE. 

Third.  Active  deposits,  made  by  business  men,  to 
be  withdrawn  to  meet  their  current  payments. 

It  will  be  necessary  to  explain  these  different  de- 
posits. 

The  permanent  or  compulsory  deposits  are  not 
used  at  all  by  those  who  make  them.  They  are 
made  with  the  tacit  understanding  that  they  are  to 
remain  in  the  bank,  and  not  be  drawn  upon.  They 
are  made  to  secure  favors  from  the  bank,  and  in 
order  to  show  a  "good  account."  No  bank,  per- 
haps, compels  its  customers,  by  any  law  or  rule,  to 
do  this ;  but  custom  in  such  a  case  is  as  imperative 
as  law.  Banks  are  conducted  wholly  with  reference 
to  profit,  and  the  most  profitable  accounts  will  secure 
the  most  liberal  discounts. 

These  deposits  constitute  a  permanent  loan  to  the 
banks,  without  interest;  and  the  banks  can  loan  the 
same  to  their  customers  upon  interest.  It  is  one  of 
the  forms  in  which  a  bank  may  secure  extra  inter- 
est in  a  legal  way ;  but  it  is  done  at  the  expense  of 
those  who  make  the  deposits. 

This  kind  of  deposits  forms  a  very  dangerous  ele- 
ment in  the  mixed-currency  system,  for  the  reason, 
that,  when  the  merchants  of  any  great  city  are 
driven  to  desperation,  they  may  demand  these  de- 
posits in  specie,  and  then  the  banks  must  suspend. 
This  was  done  in  ISTew  York  in  October,  1857,  as 
before  stated.  The  merchants  saw  clearly,  that, 
unless  the  banks  would  make  discounts,  they  could 
not  meet  their  engagements.  The  banks  refused  to 
do  this,  because  they  could  not,  and  continue  to  pay 
specie.  The  merchants  then,  by  concerted  action, 
called  for  their  deposits ;  and  the  banks  themselves 
succumbed. 


ANALYSIS    OF    DEPOSITS.  165 

This  will  always  be  re-enacted  in  a  time  of  great 
pressure,  if  the  mixed-currency  system  is  continued. 
It  is  the  only  remedy  which  the  mercantile  interest 
has  within  its  power.  It  is  properly  used,  because 
the  banks  have  no  right  to  make  promises  which 
they  know  perfectly  well  they  cannot  keep. 

Another  objectionable  consideration  is,  that  these 
deposits  greatly  and  unnecessarily  enlarge  the  im- 
mediate liabilities  of  the  banks,  and  give  them  a 
frightful  preponderance  over  the  immediate  means 
of  payment.  This  injures  the  credit  of  the  banks 
in  times  of  pressure.  All  sagacious  financiers  look 
with  suspicion  on  institutions  owing  ten  or  fifteen 
dollars  on  demand  for  every  dollar  they  have  in 
their  possession.  On  the  29th  of  August,  1857, 
the  banks  of  the  city  of  New  York  owed  for  eighty- 
four  millions  for  deposits  and  nine  millions  for  cir- 
culation,— in  all,  ninety-three  millions, — and  had 
but  nine  millions  of  specie. 

Compulsory  deposits  mean,  simply,  extra  interest; 
but  that  interest  is  paid  in  a  manner  most  burden- 
some to  the  depositors,  and  most  dangerous  to  the 
banks. 

Of  the  second  class  of  deposits,  viz.,  those  on  trust 
or  for  safe  keeping  merely,  it  may  be  said,  that  they 
are  perfectly  legitimate,  and  may,  to  a  certain  ex- 
tent, be  loaned  by  the  banks  with  safety. 

The  third  class  of  deposits  may  be  described  as 
follows: 

(a)  A  business  man,  who  is  making  sales  each 
day,  will  receive,  in  payment,  notes  of  all  the  dif- 
ferent kinds  in  circulation.  He  will  also  receive 
checks  on  different  banks.  All  these  he  will  de- 


166  EXCHANGE. 

posit  in   bank;    and  the  amount  is  passed  to  his 
credit,  and  becomes  a  bank  deposit. 

(b)  He  will  also  receive  notes  of  hand,  drafts,  and 
bills  of  exchange   in   payment.      All  these,  when 
nearly  due,  he  will  deposit  in   bank;    and,  when 
paid,  they  are  passed  to  his  credit. 

(c)  Or,  if  he  desires  to  anticipate  the  payment  of 
such  notes,  he  may  ask  the  bank  to  deduct  the  in- 
terest (and  exchange,  if  there  be  any),  and  place  the 
amount  to  his  credit;  and  this  the  bank  will,  in 
ordinary  circumstances,  be  ready  to  do;   and  the 
amount  so  passed  to  the  credit  of  the  customer  will 
constitute  a  part  of  the  deposits  of  the  bank. 

ARE    BANK    DEPOSITS    CURRENCY? 

Lord  Overstone  has  maintained  the  negative;  but 
most  writers  in  this  country  take  the  affirmative 
side  of  the  question :  indeed,  there  are,  at  the  present 
time,  few,  if  any,  who  doubt  that  deposits  are  cur- 
rency. The  New  York  Board  of  Currency  has  given 
its  verdict  unequivocally  as  follows:  "They  constitute 
at  this  time  jive-sixths  of  the  active  currency  of  this  city." 
See  the  official  report  of  that  association  for  Novem- 
ber, 1858.  No  array  of  authorities,  however,  but 
an  examination  of  facts,  should  determine  the 
question. 

Deposits  are  an  instrumentality  by  which  by  far  the 
greatest  amount  of  values  are  transferred  in  com- 
mercial centres.  They  discharge  debts,  purchase 
commodities,  and  perform  all  the  functions  of  cur- 
rency,  except  circulation. 

For  example,  A  has  a  deposit  in  the  Merchants' 


ANALYSIS    OF    DEPOSITS.  167 

Bank.  He  purchases  of  B  a  bill  of  sugars,  amount- 
ing to  ten  thousand  dollars,  and  pays  for  the  same 
with  a  check  on  that  bank,  with  which  B  either 
draws  the  notes  or  specie  of  the  bank,  or  has  the 
check  passed  to  his  credit  by  the  bank.  This  trans- 
action has  been  equivalent  to  the  transfer  of  ten 
thousand  dollars  in  value  from  one  party  to  the 
other. 

If  A  owed  B  a  note  of  ten  thousand  dollars,  he 
might  pay  it  in  the  same  way. 

Now,  what  difference  did  it  make  to  A  whether 
he  had  ten  thousand  dollars  of  bank-notes  in  his  till, 
or  an  equal  amount  to  his  credit  in  the  bank? 
Clearly,  not  the  slightest.  One  was  as  truly  cur- 
rency as  the  other. 

All  bankers  and  business  men  are  well  satisfied 
that  deposits  are  even  more  active  by  far  in  trans- 
ferring values  than  the  bank  circulation;  that  a 
much  greater  number  of  exchanges  is  made  with 
deposits  than  with  an  equal  amount  of  bank-notes. 

A  little  reflection  will  satisfy  any  one  that  such 
is  the  fact.  The  sum  of  ten  thousand  dollars,  for 
example,  might  easily  pay  in  a  single  day,  in  ten 
different  transfers  by  checks,  a  total  of  one  hundred 
thousand  dollars.  This  would  not  be  an  extravagant 
supposition;  but  it  would  be  quite  improbable  that 
bank-notes  make  ten  payments  in  a  single  day. 

The  efficiency  of  money,  or  its  substitutes,  de- 
pends greatly  upon  the  rapidity  with  which  ex- 
changes are  made.  John  Stuart  Mill  recognizes 
this  principle;  and  it  is  a  very  obvious  one.  The 
currency  of  any  country  is  as  its  quantity  multiplied 
by  the  rapidity  of  its  circulation.  This  considera- 


168  EXCHANGE. 

tion  will  lead  us  to  regard  the  whole  amount  of 
deposits  as  equal  in  effect  to  an  equal  amount  of 
circulation. 


CHAPTER    VI. 


MIXED    CURRENCY. —  FLUCTUATIONS    IN    QUANTITY   AND 
QUALITY. 

A  MIXED  currency  consists,  as  we  have  shown, 
of  two  kinds  of  bank  indebtedness,  viz.,  what  the 
banks  owe  for  their  notes  issued  as  circulation, 
and  what  they  owe  on  account,  the  payment  for 
both  of  which  may  be  demanded  in  coin.  We  pass 
now  to  consider  this  currency  in  its  several  rela- 
tions to  the  public  wealth.  Such  an  inquiry  will  de- 
mand great  carefulness  and  impartiality,  and  must 
necessarily  be  made  in  detail. 

We  have  two  grand  questions  which  arise  natu- 
rally at  the  start: 

1st.  Does  it  perform  satisfactorily  the  functions 
of  money?  If  we  answer  this  inquiry  favorably, 
we  have  still  to  ask, — 

2d.  What,  and  how  great,  are  its  effects  on  public 
interests,  beyond  the  proper  effects  of  value  cur- 
rency ? 

These  questions  are  so  full  of  interest  to  all  the 
departments  of  wealth,  are  so  deeply  obscured  by 
prejudice  and  misapprehension,  and  are  so  espe- 
cially important  at  the  present  time,  that  their  dis- 
cussion will  be  protracted  through  several -chapters. 


MIXED    CURRENCY.  169 

1ST.   DOES    A    MIXED    CURRENCY    SATISFACTORILY    1ER- 
FORM    THE   FUNCTIONS    OF    MONEY? 

Those  functions  are,  as  already  stated, — to  act  as  a 
medium  of  exchange,  and  to  be  a  standard  of  value. 

Does  a  mixed  currency  perform  them  well  ?  We 
answer,  no.  The  essential  quality  of  such  a  currency, 
which  unfits  it  to  act  well  as  either  a  standard  of 
value  or  a  medium  of  exchange,  is  this : 

IT   IS   NOT    GOVERNED    BY   THE    LAWS    OF   VALUE. 

It  is  subject  to  quite  other  laws.  It  varies  as  to 
its  volume  and  character;  but  we  do  not  find  that  it 
does  this  out  of  respect  for  value.  The  great  prin- 
ciple of  value  is,  demand  creates  supply ;  supply 
satisfies  demand.  They  are  measured  against  each 
other,  and  are  found  equal.  There  is  no  supply 
which  demand  does  not  call  for :  there  is  no  supply 
which  is  not  enough  for  demand.  And  the  reason 
for  this  perfect  equality  is  that  value  cannot  exist 
without  labor.  The  same  cause  that  increases  sup- 
ply expands  demand  to  the  same  proportions;  the 
same  cause  that  restricts  supply  reduces  demand 
correspondingly. 

!N"ow,  this  law  controls  the  expansion  or  contrac- 
tion of  money,  or  a  value  currency.  If  it  is  increased, 
as.  it  may  be  in  the  natural  course  of  commercial 
transactions,  it  is  because  actual  money  has  been 
brought  into  the  country  by  the  balance  of  trade  ; 
but  a  mixed  currency  Js  increased  by  the  voluntary 
and  interested  action  of  bank  managers,  without  re- 
gard to  the  laws  of  value,  and  without  the  addition 

15 


1  •  0  EXCHANGE. 

of  a  dollar  to  the  real  money,  or  wealth,  of  the  coun- 
try. The  increase  of  money  by  importation  takes 
place  in  obedience  to  causes  that  are  gradual  and 
appreciable;  and  any  one  who  watches  the  course 
of  commerce  can  anticipate  its  arrival.  If  it  comes 
in  excess,  from  any  unusual  source,  it  easily  and 
naturally  passes  off*  to  other  countries,  till  the  balance 
is  restored.  N~o  artificial  appliances  or  legal  enact- 
ments are  needed  to  keep  true  money  at  a  level  the 
world  over. 

We  have  found  that  the  quantity  of  a  mixed  cur- 
rency is  not  governed  by  the  laws  of  value.  Do  we, 
then,  find  that  it  is  controlled  by  accident?  It  would 
be  better  so,  for  there  would  be  more  chances  of  its 
coming  right.  But,  on  the  contrary,  we  find  laws 
positively  mischievous  substituted  for  the  wholesome 
operation  of  supply  and  demand. 

Firstly.  Of  expansion.  The  more  that  is  issued 
of  a  mixed  currency,  the  more  will  be  wanted.  The 
supply  does  not  satisfy  the  demand ;  it  excites  it. 
Like  an  unnatural  stimulus  taken  into  the  human 
system,  it  creatfs  an  increasing  desire  for  more ; 
and  the  more  it  is  gratified,  the  more  insatiable  are 
its  cravings. 

There  are  two  reasons  for  this:  one,  that,  as  the 
currency  is  expanded,  prices  are  raised  correspond- 
ingly, and  more  currency  is  demanded  to  effect  the 
same  exchanges ;  the  other,  that  the  speculation 
inevitably  following  the  rise  of  prices  leads  to  an 
enormous  extension  and  repetition  of  indebtedness, 
which  requires,  for  its  discharge,  a  greatly  increased 
amount  of  the  circulating  medium.  Thus,  by  the 
action  and  interaction  of  these  causes,  the  demand 


MIXED  CURRENCY.  17  L 

for  the  issue  of  this  kind  of  currency  is  certain  to  be 
greatest  when  it  is  already  redundant.  All  this,  of 
course,  is  quickened  and  helped  by  the  fact  that  the 
manufacturers  of  this  currency  are  ready  and  eager 
to  crowd  upon  the  public  all  it  will  take. 

Secondly.  Of  contraction.  We  have  seen  the  forces 
that  raise  the  currency  higher  and  higher.  We  have 
not  seen  that  it  is  done  for  the  public  good,  or  in 
obedience  to  a  call  of  trade.  We  might  suppose  that 
there  would  be  an  unending  progress  in  this  direc- 
tion, till  any  degree  of  expansion  should  be  reached, 
inasmuch  as  the  law  of  value  does  not  govern  a  prod- 
uct into  which  the  element  of  labor  does  not  enter. 
It  is  not,  therefore,  the  expense  of  multiplying  it, 
nor  is  its  increase  limited  by  any  consideration  of 
utility.  The  cause  that  limits  expansion,  and  finally 
produces  contraction,  is  the  liability  of  the  notes  to 
be  presented  for  payment  in  money.  The  occasion 
for  this  cause  to  operate  may  be  almost  anything, — 
a  political  convulsion,  an  adverse  balance  of  trade, 
a  failure  of  some  large  trading  or  banking  company. 

We  will  take  that  one  which  is  most  common  and 
sensible, — an  adverse  balance  of  trade.  If  it  be 
large,  the  demand  for  specie  which  it  occasions  will 
create  a  profound  sensation  among  the  banks.  With 
actual  money,  there  is,  under  these  circumstances, 
110  reason  for  excitement  or  alarm;  ten  million  dol- 
lars of  the  currency  will  discharge  that  amount  of 
debt  abroad,  and  the  currency  at  home  is  reduced 
but  so  much.  A  mixed  currency  has,  in  itself,  no 
power  whatever  to  satisfy  a  foreign  creditor.  If  ten 
million  dollars  are  to  be  paid  abroad,  it  must  be 
taken  from  the  specie  of  the  banks ;  the  basis  of  the 


172  EXCHANGE. 

currency  is  so  much  diminished,  and  the  circulation 
must  be  curtailed  accordingly  ;  that  is,  notes  must 
be  brought  in,  and  not  put  out  again  till  the  basis  is 
restored.  If  the  proportion  of  specie,  as  is  the  case 
on  an  average  in  this  country,  is  only  as  one  to  live 
of  notes,  then  the  export  often  million  dollars  abroad 
must  cause  a  contraction  to  the  extent  of  fifty  million 
dollars  at  home.  The  withdrawal  of  so  much  cur- 
rency, and  of  that  very  part  which  circulates  most 
actively,  causes  stringency ;  and  stringency  causes 
suspicion.  Let  another  ten  millions  be  called  for 
out  of  the  specie  basis,  and  affairs  will  become  very 
critical.  The  legitimate  effect  of  the  export,  so  far, 
would  be  to  contract  the  currency  one  hundred  mil- 
lion dollars;  but  another  cause  is  introduced  now. 
Vague  apprehensions  abound,  everybody  gets  pru- 
dent, many  are  scared,  and  money  is  hoarded.  Here 
is  another  reason  for  contraction.  With  a  value 
currency,  the  fact  that  it  was  especially  wanted  would 
be  a  reason  why  it  should  stay.  Not  so  with  credit 
money. 

It  is  hardly  necessary  to  trace  the  course  of  con- 
tractions, they  are  so  familiar  to  the  American  mind. 
The  banks  know  their  own  position  better  than  any 
one  else.  They  understand  precisely  what  they 
must  do.  They  act  instantaneously.  They  curtail 
their  loans.  They  know  that  trouble  is  at  hand,  and 
they  propose  to  meet  it  in  the  best  way  for  them- 
selves. They  know  that  their  notes  may  now  prove 
their  ruin,  arid  they  propose  to  get  them  out  of  the 
way  as  fast  as  possible. 

There  are  two  classes  of  banks : 

1st.  Those  who  transact  all  their  business  in  an 


MIXED    CURRENCY.  173 

honorable  manner,  and,  so  far  as  the  nature  of  the 
currency  they  issue  will  admit,  on  a  secure  basis. 

2d.  Those  who  get  out,  and  keep  out,  all  they 
can,  and  carry  their  circulation,  deposits,  and  loans 
as  high  as  possible,  without  regard  to  the  specie  in 
their  vaults.  This  class  is  numerous,  especially 
among  those  of  small  capital. 

In  case  of  a  demand  for  specie,  the  latter  class 
are  obliged  to  call  for  assistance  from  the  former, 
who,  willing  or  unwilling,  are  equally  obliged  to 
give  it.  The  " feeble  banks"  must  be  sustained,  or 
the  whole  system  will  be  suspected.  If  these  be 
allowed  to  dishonor  their  notes,  a  run  will  be  made 
at  once  on  all  the  rest;  and,  having  as  we  see  only 
one  dollar  in  five  to  pay  with,  they  must,  of  course, 
soon  stop  paying  altogether. 

It  is  commonly  said  that  the  banks  only  increase 
their  issues  as  demanded  by  the  wants  of  trade; 
that  they  extend  their  credits,  because  the  public 
require  them  as  business  facilities. 

If  this  were  true,  it  would  be  of  no  consequence 
in  the  discussion  ;  because,  the  laws  of  value  having 
been  disturbed  in  this  matter,  the  demand  is  no 
longer  normal.  We  have  110  longer  the  assurance 
that  trade  will  call  into  use  just  that  amount  of  cur- 
rency which  it  needs. 

But  it  is  not  true.  The  movement  always  com- 
mences with  the  banks.  When,  by  a  monetary  re- 
vulsion, their  circulation  and  deposits  have  been 
reduced  so  low  that  they  feel  safe  in  commencing 
another  expansion,  the  panic  being  over,  the  banks 
begin  to  offer  extraordinary  inducements  to  their 
customers  to  borrow  money.  They  will  discount 

15* 


-174  EXCHANGE. 

all  good  paper  offered,  even  if  it  has  a  long  time  to 
run.  It  is  not  uncommon,  at  such  times,  to  solicit 
the  privilege  of  making  loans.*  As  soon  as  this 
state  of  things  takes  place,  all  business  men  begin 
speculative  operations ;  for  prices  have  begun  to 
rise.  Speculation  will  give  a  still  greater  rise  to 
prices,  and  cause  a  still  greater  demand  for  cur- 
rency. The  expansive  force  is  now  in  full  opera- 
tion, and  is  sure  to  increase  in  power  till  by  re- 
vulsion the  equilibrium  is  restored. 


CHAPTER   VII. 

TABLES    AND    DIAGRAMS    OF    MIXED-CURRENCY   FLUC- 
TUATIONS. 

WE  have  shown,  from  the  reason  of  the  case,  that 
a  mixed  currency  is  not  governed  by  the  laws  of 
value;  and  that  therefore  its  variations  are  con- 
trolled by  other  principles,  which  give  no  guaranty 
to  the  public  good,  but,  on  the  contrary,  threaten 
great  mischief  to  the  community,  both  by  expansion 
and  contraction. 

We  now  propose  to  show,  by  facts  taken  from 
official  statistics,  that  such  fluctuations  are  frequent 
and  violent. 

The  following  table  exhibits  the  fluctuations  in 
the  absolute  quantity  of  the  mixed  currency  (circula- 

*  This  is  within  the  personal  knowledge  of  the  author  as  a  bank 
director. 


Per 
Capita. 


DIAGRAM    Na  1. 

Showin^  the  fluctuation  of  the  Currency  of  the 

United  States,  and  the  Proportion  of  Specie 

to  Circulation  and  Deposits. 


1837 


Capita. 


Circulation  ana  Deposits  per  Capita. 


TABLES  AND    DIAGRAMS. 


177 


tion  and  deposits)  of  the  United  States  from  1834  to 
1859  inclusive,  a  period  of  twenty-six  years: 


TABLE    I. 


1834 170,000,000 

1835  .    ...  186,000,000 

1836 255,000,000 

1837 273,000,000 

1838 200,000,000 

1839 225,000,000 

1840 182,000,000 

1841 172,000,000 

1842 146,000,000 

1843 114,000,000 

1844 159,000,000 

1845 177,000,000 

1846  .....  202,000,000 


1847 197,000.000 

1848 231,000,CO« 

1849 205,000.000 

1850 240,000,000 

1851 284,000,000 

1852 328,000,000 

1853 348,000,000 

1854 392,000,000 

1855 377,000,000 

1856 408,000,000 

1857 445,000,000 

1858 341,000,000 

1859 452,000,000 


These  facts  are  collected,  as  nearly  as  possible, 
from  the  returns  made  at  the  beginning  of  the  years 
mentioned.  Therefore  the  contractions  or  expan- 
sions made  during  a  year  do  not  appear  till  the  re- 
turn of  the  next  year.  For  example,  the  great  con- 
tractions of  1837  and  1857,  beginning  several  months 
after  January,  do  not  exhibit  their  full  effects  till 
the  currency  returns  of  the  years  1838  and  1858. 

Diagram  No.  1,  here  introduced,  exhibits  the 
fluctuations  in  the  currency  (circulation  and  de- 
posits), and  also  the  proportion  of  specie,  from  1834 
to  1859  inclusive,  both  reckoned  per  capita. 

The  upper  line  indicates  the  currency,  the  lower 
one  the  specie. 

This  diagram  shows  distinctly  the  actual  fluctua- 
tions in  the  currency,  because  its  amount,  at  the 
several  periods,  is  reckoned  per  capita.  This  is  a 


178 


EXCHANGE. 


far  more  correct  mode  of  getting  at  the  real  changes 
than  taking  the  absolute  quantity.  The  upper  line 
represents  the  fluctuations  in  the  quantity  of  the 
currency,  the  lower  line  indicates  its  quality  from 
time  to  time. 

The  following  table  exhibits  the  extreme  fluctua- 
tions in  the  quantity  of  the  currency  of  the  United 
States  per  capita,  at  different  times,  with  the  cor- 
responding variations  per  cent,  in  its  quality: 

TABLE    II. 

Showing  the  Extreme  Fluctuations  in  the  Currency  of  the  United 
Slates  per  Capita  at  different  Times,  with  the  Corresponding  Vari- 
ations in  its  Quality,  or  the  Proportion  of  Specie  held  for  its  Re- 
demption. 


Years. 

Currency 
per  capita. 

Fluctuations. 

Per 

cent. 

Quality,  or 
specie  to 
circulation. 

Variations  in 
quality. 

Per 

cent. 

1834 

l'-82 

15iv  t0  100 

*1837 

17-61 

Expansion 

50 

13^  to  100 

Depreciation 

11^ 

1S40 

10-70 

Contraction 

39 

18     to  100 

Improvement 

:« 

1843 

6-18 

« 

42 

2  »     to  100 

" 

61 

1846 

y-y-i 

Expansion 

61 

21      to  100 

Depreciation 

36 

1849 

9-18 

Contraction 

7 

21      to  ICO 

Stationary 

0 

1852 

18-81 

Expansion 

45 

loUtoKK) 

Depreciation 

•27 

1855 

13-93 

M 

13 

14      to  100 

" 

10 

*1857 

15-50 

» 

11 

13      to  100 

H 

7 

1858 

11-55 

Contraction 

26 

2  V£t..ioo 

Improvement 

73 

1859 

14-90 

Expansion 

23 

23     to  100 

2 

*  Years  when  the  banks  suspended.  Observe  the  great  ex- 
pansion between  the  year  1834  and  1837  of  some  fifty  per  cent.; 
and  between  1849  and  1857  of  some  seventy  per  cent. 


TABLES    AND    DIAGRAMS. 


179 


TABLE   III. 

The  following  Table  exhibits  the  Composition  of  the  Mixed  Currencies 
of  the  several  States  of  the  Union,  Jan.  1,  1860 ;  that  is,  the  Per- 
centage of  Specie  to  the  Circulation  and  Deposits  in  the  Currency  of 
each  State: 


Per 

Per 

Per 

cent. 

cent. 

cent. 

Louisiana 

38-6 

Pennsylvania 

21-3 

Delaware  . 

9-9 

Missouri   . 

37- 

Iowa      .     .     . 

20- 

New  Jersey 

8'9 

Georgia     . 

23-7 

Virginia     .    . 

16-7 

Connecticut 

7.5 

Kentucky 

23-4 

New  York      . 

15-6 

Rhode  Island 

6.3 

Tennessee 

23- 

South  Carolina 

15-5 

New  Hampshire 

5.7 

North  Carolina 

22-08 

Ohio.     .    .     . 

15-2 

Wisconsin 

5-5 

Indiana     . 

22-3 

Massachusetts 

15-1 

Vermont   . 

4-2 

Alabama  . 
laryland 

22-2 
21  '4 

Florida.    .    . 

Miii  no 

10-5 
10- 

Michigan  . 
Illinois 

4- 
2-3 

But  there  are  variations,  not  only  in  the  general 
currency  of  the  United  States,  such  as  we  have  in- 
dicated, but  also  in  the  currency  of  each  State,  at 
different  periods. 

We  take  that  of  Massachusetts,  in  illustration : 

TABLE     IV. 

Exhibiting  the  Quality  of  the  Currency  of  Massachusetts. 


Year 

1835 

1837 

1840 

1843 

1851. 

1857. 

1859. 

1860. 

Specie,  per  cent.  .  . 

7-1 

8 

18% 

44-1 

7-5 

8-9 

14-6 

15-1 

Volumes  of  statistics  might  be  given  of  the  same 
general  character ;  but  these,  it  is  presumed,  are 
sufficient  to  show  the  fluctuating  character  of  the  mixed 
currency  of  the  United  States,  both  in  quantity  and 
quality  ;  and  of  course,  in  degree,  of  all  other  coun- 
tries where  such  a  currency  exists :  for  it  is,  at  all 
times  and  everywhere,  the  same  in  its  general  char- 
acteristics. 


180  EXCHANGE. 


CHAPTER  VIII. 

MIXED  CURRENCY  AS  A  MEDIUM  OF  EXCHANGE. 

HAVING  shown  that  a  mixed  currency  is  certain 
to  expand  and  contract,  without  reference  to  the 
healthful  and  harmonious  provisions  of  value,  and 
to  a  degree  more  extreme  and  dangerous  than  a 
currency  composed  of  real  money,  we  are  prepared 
to  answer  summarily  the  principal  question. 

Does  a  mixed  currency  perform  satisfactorily  the 
functions  of  money  ? 

1st.  Does  it  act  efficiently  as  amedium  of  exchange? 

Currency,  regarded  merely  as  a  medium  of  ex- 
change, may  be  said  to  perform  two  offices :  (a)  To 
transfer  commodities  from  one  person  to  another. 
For  this  purpose,  a  mixed  currency,  having  a  circu- 
lation wholly  of  paper,  is  found  to  be  portable, 
readily  counted,  easily  carried,  safely  kept,  and  is, 
consequently,  as  convenient  as  any  agent  that  could 
reasonably  be  desired,  (b)  To  discharge  indebted- 
ness between  different  parties.  For  this  purpose, 
the  thing  to  be  desired  is,  that  currency  should  be 
reliable  ;  that  is,  that  there  should  be  nothing  in  its 
own  nature,  which  disqualifies  it  to  act  fully,  at  all 
times,  as  a  means  of  discharging  obligations. 

Coin  is  always  perfectly  reliable  for  the  payment 
of  debts.  When  one  debt  has  been  discharged  by 
it,  the  coin  is  just  as  available  and  acceptable  for 
the  discharge  of  a  second  or  any  succeeding  debt. 


MEDIUM    OF    EXCHANGE.  181 

If  gold  and  silver  are  called  for  by  foreign  obliga- 
tions, they  retain  their  full  power  to  discharge  them. 

We  here  make  two  principal  statements : 

A  foreign  demand  is  the  only  cause  that  can  take 
away  the  real  money  of  a  people.  We  have  seen 
that  an  indefinite  number  of  causes  may  take  away 
a  currency  based,  in  any  degree,  on  credit. 

But,  again,  a  foreign  demand  can  only  take  away 
its  own  amount  of  real  money.  We  have  seen  that 
such  a  cause  takes  away  an  amount  of  mixed  cur- 
rency of  which  the  quantity  required  abroad  is  only 
one  factor;  the  other  factor  being  that  number 
which  represents  the  proportion  between  the  bulk 
of  the  currency  and  the  specie  basis  In  these  two 
statements  are  clearly  shown  the  entire  unrelia- 
bility of  mixed  currency  to  discharge  indebtedness. 
The  man  who  promises  to  pay  money  can  never 
know  what  may  be  the  demand  for  specie,  arising 
from  a  want  of  confidence  in  the  banks,  or  from  a 
necessity  of  export;  and,  of  course,  can  never  be 
safe  in  giving  his  notes  predicated  upon  the  cur- 
rency as  it  exists  at  the  time. 

So  far  as  the  fluctuations  we  have  shown  derange 
general  plans  of  business,  distort  prices,  work  injus- 
tice to  one  party  of  every  bargain,  and  tend,  by  such 
inequalities  and  uncertainties,  to  discourage  steady 
enterprise,  they  do  not  present  themselves  here  for 
examination.  We  shall  meet  them,  when  discuss- 
ing a  mixed  currency  as  performing  its  function-  as 
a  standard  of  value.  We  have  to  do  here,  not  with 
the  unfairness  and  injustice  with  which  indebtedness 
is  discharged  under  such  a  currency,  but  with  the 
difficulty  or  impossibility  of  discharging  it  at  all. 

16 


182  EXCHANGE. 

How  does  a  mixed  currency  perform  the  functions 
of  money,  so  far  as  discharging  indebtedness  in 
times  of  panic? 

Let  us  suppose  the  case  of  the  best  man  in  the 
community.  He  has,  in  the  legitimate  course  of 
business,  contracted  obligations,  all  within  the  limit 
of  his  abilities,  now  coming  due.  The  banks  are 
withdrawing  their  circulation  as  largely  as  possible, 
and  do  not  mean  to  let  it  out  again.  The  fact  of  his 
own  excellent  standing  is  of  no  moment  in  securing 
discounts;  for  there  is  just  as  much  danger  to  the 
banks  in  letting  him  have  their  notes  as  any  one  else. 
It  is  the  peculiar  hardship  of  good  men,  in  such 
times,  that  it  is  not  their  credit,  but  the  credit  (that 
is,  the  condition)  of  the  banks,  which  is  to  decide 
the  question  of  loans.  With  a  value  currency,  on 
the  other  hand,  the  only  matter  of  consideration  is 
the  solvency  of  the  applicant  himself. 

Of  course,  there  are  individuals  and  institutions, 
who,  in  consideration  of  high  premiums  and  full 
security,  will  grant  accommodations  to  a  limited 
amount.  A  man  may  try  to  get  along,  sacrificing 
his  property  to  save  his  name,  and  paying  twenty- 
four  or  thirty  six  per  cent,  for  loans.  Perhaps,  if 
others  stood  well,  he  might  get  through;  but  all  are 
not  so  firm  as  himself.  Most  have  less  accumula- 
tion and  less  credit.  His  debtors  fail  to  pay:  how 
can  he  answer  his  creditors  f  If  he  tries  to  go  through, 
the  payments  are  all  one  way,  like  the  tracks  about 
the  lion's  den.  He  has  to  pay  both  sides  of  the 
ledger. 

We  have  spoken  of  the  credit  element  of  a  mixed 
currency.  But  panic,  suspicion,  apprehension,  are 


MEDIUM    OF    EXCHANGE.  1S3 

the  deadly  enemies  of  credit:  when  these  are 
aroused  in  the  community,  it  cannot  go  abroad. 
Just  as  nearly  as  the  object  can  be  accomplished  in 
the  time  given,  all  forms  of  credit  will  be  withdrawn. 
But  this  will  produce,  in  its  several  degrees,  strin- 
gency, distress,  panic,  ruin. 

Is  it,  then,  too  much  to  say  that  credit  is  not  reli- 
able for  the  discharge  of  indebtedness  ? 

The  element  of  credit  introduces  a  direct  hostility 
between  the  interests  of  those  who  control  the  cur- 
rency and  those  who  wish  to  use  it.  The  interest 
of  the  one  requires  that  the  notes  shall  be  with- 
drawn. The  interest,  nay,  the  life,  of  the  other 
requires  that  they  shall  be  kept  in  circulation.  Is 
there  any  such  hostility  in  a  value  currency?  Not 
at  all. 

We  have  said  that  a  sudden  and  severe  contrac- 
tion is  necessary  whenever  any  cause  threatens  the 
specie  basis  of  a  mixed  currency.  Such  a  contrac- 
tion deprives  the  community  of  the  means  of  meet- 
ing obligations  undertaken  when  the  currency  was 
redundant. 

But  this  contraction,  when  it  has  become  inevita- 
ble, does  not  take  place  without  danger  and  loss  to 
the  banks  themselves ;  danger  and  loss  being  the 
proper  consequences  of  such  operations.  The  banks 
make  no  more  loans,  or  as  few  as  possible.  The 
means  of  discharging  debts  become  less  and  less  in 
the  community  each  succeeding  day,  until  the  rate  of 
interest  goes  up  to  two  or  three  per  cent,  a  month, 
and  money  can  hardly  be  had  at  all. 

The  banks  now  find  themselves  in  this  dilemma: 
if  they  make  loans,  they  must  keep  paying  out  their 


184        .  EXCHANGE. 

specie.  This  will  soon  become  exhausted,  and  they 
must  suspend  and  be  dishonored.  If  they  do  not 
continue  to  accommodate  their  customers  with  the 
usual  means  of  paying  debts,  the  latter  must  suc- 
cumb. But,  if  their  customers  generally  fail,  the 
banks  will  lose  their  capital  (it  being  chiefly  in  the 
form  of  notes  given  by  individuals),  and  be  perma 
nently  ruined.  The  history  of^the  country  shows 
on  which  horn  of  the  dilemma  they  choose  to  be 
impaled.  They  suspend  or  stop  specie  payments, 
and  then  furnish  the  public  with  an  abundance  of 
their  notes,  such  as  they  are. 

After  this  has  been  accomplished,  and  after  the 
credit  of  the  banks  has  been  exchanged  for  the 
credit  of  the  individuals  who  owe  them,  and  after 
the  demand  for  specie  has  ceased,  the  banks  can 
resume  payments. 


CHAPTER    IX. 

MIXED    CURRENCY   AS    A    STANDARD    OF    VALUE. 

2d.  DOES  a  mixed  currency  act  justly  as  a  stand- 
ard of  value  ? 

This  function  of  money  is  of  a  very  important 
character.  It  lies  at  the  foundation  of  all  credit  and 
all  business  calculations.  If  no  man  dealt  with  or 
trusted  another,  or  waited  a  day  to  receive  and  con- 


STANDARD    OF    VALUE.  185 

sume  the  reward  of  his  labor,  there  would  be  no 
great  need  of  such  a  standard.  But  whenever  there 
is  the  slightest  exchange  of  commodities;  whenever 
one  man  trusts  another  for  recompense  of  service, 
or  applies  wealth  and  toil  to  an  enterprise  in  the 
faith  of  receiving  a  reward  at  a  future  time, — a 
standard  of  value  must  be  had,  so  that  all  can  be 
done  safely,  expeditiously,  and  justly.  Unless  some- 
thing possessed  the  property  of  being  a  standard  of 
value,  all  exchange  would  inevitably  be  confined  to 
the  gross  and  clumsy  form  of  barter.  It  has  already 
been  included  in  the  definition  of  money,  that  it 
performs  this  office.  There  is  not  a  possibility  of 
taking  a  scientific  exception  to  this  statement;  yet 
a  great  deal  of  popular  controversy  has  arisen,  which 
we  are  obliged  to  stop  here  to  notice.  It  has  been 
said,  that  a  dollar,  for  example,  no  more  measures 
the  value  of  wheat,  than  wheat  does  the  value  of  the 
dollar;  that  "the  dollar  is  wholly  an  arbitrary,  con- 
ventional standard,  forced  on  the  people,  unjustly, 
by  legislative  enactment. " 

WHAT    IS   A    STANDARD    OF   VALUE? 

Much  confusion  has  undoubtedly  been  caused  by 
mistaken  views  of  what  is  really  meant  by  a  stand- 
ard of  value. 

Suppose  A  sells  B  a  tract  of  land,  and  agrees  to 
take  five  hundred  oxen  in  payment  at  a  future  day. 
The  value  of  the  land  sold  is,  in  this  case,  clearly 
measured  by  the  oxen.  These  latter  are  the  stand- 
ard by  which  the  value  of  the  land  is  determined. 
They  form  the  money,  or  currency,  by  which  the 

16* 


186  EXCHANGE. 

debt  is  legally  and  rightfully  to  be  discharged.  The 
oxen  here  occupy  precisely  the  position  of  the  dollar 
in  ordinary  contracts;  and,  if  we  suppose  a  com- 
munity in  which  they  are  altogether  used  as  money, 
they  become,  without  any  necessary  legal  enact- 
ment, the  universal  standard,  or  that  by  which  all 
other  values  are  measured  and  expressed.  Value 
must  be  determined  in  some  way;  and  it  can  only 
be  done  by  comparison, — by  measuring  the  land 
against  oxen,  wheat,  gold,  or  something  else  that 
has  value. 

As  long  as  the  land  was  measured,  in  the  single 
instance,  by  the  oxen,  so  long  each  measured  the 
other  alike ;  but,  when  the  use  of  the  oxen  was  ex- 
tended to  a  comparison  with  each  other  commodity 
in  the  market,  and  all  others  together,  then  it  became 
as  improper  to  say  that  the  land  measured  the  oxen 
as  to  say  that  the  wood  or  the  cloth  measure  the 
yardstick  by  which  their  length  and  breadth  are 
universally  determined. 

So,  by  universal  consent,  mankind  have  agreed  to 
measure  everything  by  the  precious  metals.  The 
laws  of  the  United  States,  for  example,  enact  that 
a  certain  coin,  or  planchei,  of  gold,  nine-tenths  fine, 
and  weighing  25^5-  grains,  shall  be  called  a  dollar. 
That  is  all  the  government  does,  all  it  ought  to  do. 
It  compels  no  one  to  receive  the  dollar  for  anything, 
unless  he  has  agreed  to  do  so,  any  more  than  it  compels 
him  to  receive  hats  or  boots,  wheat  or  cotton.  But, 
the  government  having  provided  the  coin, — that  is, 
having  certified  to  its  weight  and  fineness, — the 
people,  of  their  own  choice,  make  use  of  it  to 
measure  every  other  thing.  If  they  buy  merchan- 


STANDARD    OF   VALUE.  187 

dise  or  land  or  cattle,  they  agree  to  take  so  many 
of  these  dollars  in  payment.  As  society  in  general 
adopts  this  way  of  determining  the  worth  of  prop- 
erty, the  dollar,  not  by  law,  but  by  the  voluntary 
preference  of  the  people,  becomes  the  measure,  or 
standard,  of  value,  in  all  transactions.  So  far  as 
indebtedness  "between  individuals  is  concerned,  the 
government  makes  the  dollar  lawful  tender;  that 
is,  if  an  individual  has  a  just  claim  for  a  given 
number  of  dollars,  the  government  enacts  that  the 
same  number  of  dollars  shall  discharge  the  debt. 

Some  writers  have  insisted  that  people  should 
not  be  compelled  to  pay  so  many  dollars  in  coin; 
then  they  should  not  promise  dollars  merely,  but 
anything  else.  The  establishment  of  such  a  standard 
is  no  wrong  to  the  people;  for  it  can  easily  be  seen 
that  payments  in  any  other  specific  product  would  be 
more  likely  to  involve  hardships,  e.g.  an  obligation  to 
pay  wheat  or  potatoes  or  cotton  at  any  certain  time, 
Avould  bring  infinitely  more  chances  of  distress  re- 
sulting from  a  failure  of  the  crop  in  that  particular 
article. 

Neither  is  it  an  arbitrary  act  on  the  part  of  the 
government.  It  is  purely  a  favor,  an  accommoda- 
tion, provided  at  great  cost,  for  the  benefit  of  the 
public.  All  objections,  on  the  ground  that  it  is 
arbitrary  and  unjust  to  compel  men  to  discharge 
indebtedness  in  coin,  are  idle  and  absurd.  Those 
who  make  them  are  bound  to  show,  what  has  never 
yet  been  found,  a  better  standard. 

We  are  now  pr<  pared  to  inquire  how  a  mixed 
currency  performs  this  function. 

We  have  seen  its  fluctuations,  certain  to  occur, 


188  EXCHANGE. 

yet  wholly  uncertain  as  to  direction  and  degree. 
These  fluctuations  make  it  plain  enough,  that,  as  a 
standard  of  value,  a  mixed  currency  must  work  in- 
justice and  mischief,  both  in  expansion  and  con- 
traction. Destructive* as  are  the  great  occasional 
convulsions  of  trade,  it  is  doubtful  whether  they 
produce  as  extensive  evil  as  those  minor  disturb- 
ances which  come  every  year,  and,  indeed,  affect 
the  entire  transactions  of  the  people.  Arithmetic 
will  hardly  suffice  to  compute  losses  on  a  scale  of 
such  magnitude.  Every  bargain,  in  an  industry 
of  three  thousand  millions  a  year,  is  more  or  less 
vitiated  by  a  harsh  and  unnatural  change,  one  way 
or  the  other,  of  the  currency. 

In  the  mildest  form  of  such  a  currency,  fluctua- 
tions to  the  extent  of  fifteen  per  cent,  are  shown  by 
our  diagrams  to  be  as  commonplace  as  yearly  oc- 
currence can  make  them.  If  the  yardstick  were 
stretched  to  42  inches  one  year,  and  shrunk  to  30 
another,  or  both  should  happen  the  same  year, 
without  any  possibility  of  anticipating  the  change, 
or  any  public  proclamation  of  it,  that  fact  would  in- 
fluence manufactures,  and  every  branch  of  produc- 
tion, greatly. 

Not  to  insist  here  that  injustice  between  the  parts 
is  injury  to  the  whole,  or  to  dwell  on  the  claims 
of  public  morals,  if  we  turn  to  that  large  class  es- 
pecially entitled  to  social  and  governmental  care 
and  consideration,  who  put  out  money  at  interest 
or  in  stocks,  or  rely  on  permanent  salaries  or  wages 
for  support,  we  shall  here  find  a  mischief  without 
relief,  a  wrong  without  a  remedy.  These  receive 
no  appreciable  benefit  from  any  of  the  changes  of  a 


STANDARD    OF    VALUE.  189 

mixed  currency,  but  all  its  evils  fall  heavy  arid  un- 
broken upon  them. 

PRICE. 

Currency  performs  the  function  of  a  standard  of 
value,  by  fixing  the  price  of  commodities.  In  order 
to  examine  the  subject  intelligently,  we  shall  be 
called  first  to  notice  the  import  of  the  term  "price." 
It  expresses  the  relation  of  all  objects  to  a  common 
measure  or  standard.  For  example,  if  the  standard 
were  sheep,  it  might  be  said  that  an  ox  was  worth 
twenty  sheep;  the  price  of  the  ox  would  be  twenty 
sheep.  If  the  standard  were  dollars, — that  is,  certain 
well-known  coins, — we  should  say  that  the  ox  was 
worth  twenty  dollars,  and  that  would  be  its  price. 
An 4  it  would  be  the  same,  if  by  dollars  we  meant 
only  certain  pieces  of  paper,  promising  to  pay  these 
coins. 

Price  and  value  are  often  confounded  together. 
The  difference  is  this:  value  is  the  relation  which 
all  objects  have  to  each  other  in  exchange;  while 
price  is  the  relation  of  all  commodities  to  one  special 
object,  viz.,  money  or  currency. 

Price  may  be  increased  without  increasing  value. 
For  example:  the  price  of  flour  in  1859  was  $5;  in 
1864  it  was  $10.  Yet  a  barrel  of  flour  had  no  more 
value  at  the  latter  date  than  before  the  war,  because 
it  would  command  no  more  of  other  value;  that  is, 
of  broadcloth  or  tea,  or  other  commodity. 

This  discrepancy  is  found,  not  only  at  different 
periods  in  the  same  country,  but  between  different 
countries  at  the  same  time.  If  all  commodities  in 
all  countries  were  always  measured  by  the  same 


190  EXCHANGE. 

standard,  price  and  value  would  be  synonymous; 
but  if,  as  often  happens,  a  standard  is  adopted  in 
one  country  less  valuable  than  that  of  others,  com- 
modities will  adapt  themselves  to  the  currency,  and 
the  agreement  between  price  and  value  is  destroyed 
in  the  act  of  vitiating  the  standard. 

If  an  inventory  of  all  the  property  belonging  to 
the  people  of  the  United  States  had  been  made  in 
1864,  at  the  then  prevailing  prices,  it  would  have 
amounted  to  nearly  double  what  it  was  two  years 
before,  even  though  the  quantity  of  all  commodities 
had  been  identically  the  same.  This,  because  prices 
were  measured  not  by  gold,  but  by  credit,  or  the 
promises  of  government  and  the  banks;  but  the 
value  of  all  these  commodities  in  the  commerce  of 
the  world,  and  among  themselves,  was  no  greater 
than  two  years  before. 

We  here  present  a  table,  showing  the  historical 
variations  in  certain  commodities,  for  a  series  of 
twenty-six  years,  under  the  undisturbed  operation 
of  a  mixed-currency  system. 

We  have  selected,  for  the  purpose,  the  period 
1834-1859  inclusive,  because  it  is  the  only  one  for 
which  we  have  correct  data, — that  is,  well-authenti- 
cated returns;  and  for  the  additional  reason  that 
the  period  was  one  of  general  peace,  at  home  and 
abroad,  and  the  articles  selected  are  the  most  com- 
mon in  use,  whose  prices  are  best  known  and  least 
liable  to  variations,  except  from  changes  in  the 
value  of  the  currency. 


STANDARD    OF   VALUE. 


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DIAGRAM    Na  2. 

Showing  the  Corresponding  Fluctuations  in  Currency 

and  Prices  for  26  Years. 


Prices  as  per  Table  V. 


STANDARD    OF   VALUE.  195 

These  facts  are  shown  geometrically  in  Diagram 
No.  2. 

This  Diagram  may  require  some  explanation. 
The  upper  line  represents  the  variations  in  the 
prices  of  the  ten  commodities  chosen,  for  each  year, 
from  1834  to  1859  inclusive,  as  already  given  in  the 
tables.  The  lower  line  represents  the  bank;  cur- 
rency, per  capita,  for  the  corresponding  years. 

Several  important  facts  appear  in  this  figure. 
The  first  to  be  noticed  is  the  remarkable  corre- 
spondence between  the  first  and  second  lines,  rising 
and  falling  together ;  proving  most  conclusively,  by 
their  agreement  through  so  long  a  series  of  years, 
that  prices  depend  on  the  quantity  of  currency  in 
circulation. 

It  may  be  objected  to  this  table  that  it  does  not 
give  a  fair  representation  of  prices,  because  one  of 
the  articles  included  (mess  pork)  is  so  much  greater 
in  value  than  the  rest  as  to  decide  the  character 
of  the  general  result.  We  have  therefore  selected, 
from  the  same  Financial  Report  (1863),  ten  other 
commodities,  and  present  them  in  the  following  table, 
which,  it  will  be  seen,  corroborates  Table  V.,  in 
that  it  affords  the  same  general  facts;  viz.,  that  prices 
rise  and  fall  with  the  variations  in  the  quantity  of  the  cur- 
rency. The  commodities  taken  are, — Northern  corn, 
per  bushel;  anthracite  coal,  per  ton;  Liverpool  coal, 
per  chaldron;  fish,  per  quintal;  pig  lead,  per  100 
Ibs.;  sperm  oil,  per  gall.;  tallow,  per  100  Ibs.;  mess 
beef,  per  bbl.;  lard,  per  100  Ibs.;  and  clover-seed, 
per  100  Ibs.  These,  it  will  be  seen,  present  a  fair 
average  as  to  the  amount  of  value  in  each. 


196  EXCHANGE. 

The  result  obtained  from  a  table,  constructed 
from  all  these,  is  as  follows: 

First  six  years,  1834  to  1839,  the 

aggregate  average  price  was  .  $72.51. — Currency,  $14.24. 
1840  to  1845,  the  aggregate  average 

price  was   ....          ...  52.97. — Currency,      8.69. 

1846  to  1851,  the  aggregate  average 

price  was 54.08  — Currency,  10.23. 

1852  to  1857,  the  aggregate  average 

price  was 69.77. — Currency,    14.49. 

The  correspondence  exhibited,  in  the  foregoing 
tables  and  diagram,  between  the  quantity  of  cur- 
rency and  the  rate  of  prices,  shows  conclusively 
and  impressively  the  effects  of  a  mixed  currency  as 
a  standard  of  value;  viz.,  that  as  it  expands  or  con- 
tracts from  arbitrary  but  resistless  causes,  so  prices 
are  elevated  or  depressed, — variations  which  are 
often  sudden  and  excessive. 

After  making  due  allowance  for  those  fluctua- 
tions which  arise  from  supply  and  demand  and 
from  accidents,  the  evidence  is  most  conclusive  that 
the  quantity  of  currency  in  existence  does  determine, 
essentially,  the  prices  of  commodities;  and  that,  as 
a  mixed  currency  must  fluctuate  greatly  in  amount 
from  its  inherent  properties,  it  cannot  perform  satis- 
factorily its  function  as  a  standard  of  value. 

The  foregoing  calculations,  it  will  be  observed, 
are  made  on  the  currency  as  estimated  per  capita. 
This  is  regarded  as  the  most  correct  mode;  since, 
as  population  increases,  it  is  presumed  that  the  in- 
dustry and  trade  of  the  country  is  increased  propor- 
tionally, and,  if  so,  a  larger  amount  of  currency  will 
be  needed.  If  the  increase  of  currency  is  greater 


STANDARD    OF    VALUE.  197 

• 

than  the  increase  of  population,  the  per-capita  calcu- 
lation will  show  it. 

It  may  be  said  at  this  point,  that  the  same  effect 
on  prices  would  be  produced  by  an  equal  expansion 
or  contraction  of  a  value  currency.  Granted;  but 
such  rapid  and  violent  changes  could  not  take  place. 
'Specie  cannot  be  increased  like  paper.  It  costs 
labor,  like  corn  or  cotton,  and  is  subject  to  the 
same  laws  of  supply  and  demand. 

To  observe  further  the  operation  of  mixed  cur- 
rency as  a  standard  of  value,  and  its  effect,  not  on 
trade  generally,  but  on  ordinary  production,  let  us 
take  the  case  of  the  wheat-grower. 

A  farmer,  we  will  suppose,  has  a  crop  of  one 
thousand  bushels  of  wheat,  which  he  sells  at  ninety 
cents  per  bushel,  which  is  thirty  cents  more  than  it 
would  bring  under  a  real-money  system.  Now,  the 
question — which  is  of  great  concern  to  him,  and,  if 
to  him,  to  all  producers  of  all  commodities — is, 
whether  he  gains  or  loses  by  this  transaction. 

Take  a  single  bushel.  He  gets  ninety  cents  for 
it.  With  that,  he  purchases  six  pounds  of  sugar  at 
fifteen  cents.  This,  he  observes,  is  five  cents  more 
than  he  used  to  pay  for  sugar,  when  his  wheat  was 
but  sixty  cents.  lie  perceives,  that,  having  paid 
five  cents  per  pound  extra  on  the  sugar,  he  has  just 
lost  all  the  additional  price  of  thirty  cents  on  the 
bushel  of  wheat. 

This  transaction  of  selling  one  bushel  of  wheat 
for  six  pounds  of  sugar  fairly  represents  the  result 
of  selling  the  whole  crop,  and  investing  the  pro- 
ceeds in  other  kinds  of  property;  because  all  com- 
modities have  alike  risen  in  price. 

17* 


198  EXCHANGE. 

•* 

But  it  may  be  asked,  Suppose  the  farmer  paid 
a  debt  of  nine  hundred  dollars  with  the  money  he 
obtained  for  his  wheat,  has  he  not  gained  by  the 
rise  in  price?  If  he  contracted  the  debt  before  the 
rise,  he  certainly  has  made  a  large  gain  in  the  pay- 
ment of  the  debt;  for,  as  things  were  when  the  debt 
was  contracted,  it  would  have  taken  fifteen  hundred* 
bushels  of  wheat  at  sixty  cents  to  pay  nine  hundred 
dollars.  Here  he  has  gained  three  hundred  dollars, 
or  saved  five  hundred  bushels  of  wheat,  less,  be  it 
recollected,  the  extra  expense  of  fifty  dollars  in  the 
raising  of  the  crop.  His  net  gain  is  two  hundred 
and  fifty  dollars. 

But  how  is  it  with  his  creditor?  He  finds,  on  re 
investing  the  money  in  cattle,  horses,  sheep,  ploughs, 
wagons,  and  the  like,  that  the  nine  hundred  dollars 
will  purchase  but  two-tbinds  as  much  as  when  he 
loaned  the  money.  He  has  lost  three  hundred  dol- 
lars. The  farmer  promised  to  pay  "  dollars;"  but 
he  did  not,  he  only  paid  the  promise  of  dollars; 
and  these  promises  were  so  easily  made,  became  so 
plenty,  proved  so  cheap,  that  they  were  really  worth 
but  two-thirds  of  what  they  professed  to  be.  This 
he  found  when  he  came  to  use  them  in  buying 
articles  for  his  family. 

Much  misapprehension  arises  from  confounding 
special  and  general  prices,  or  the  price  of  an  indi- 
vidual article,  as  distinguished  from  that  of  the  great 
mass  of  commodities.  We  are  told  that  a  variety  of 
considerations  enter  into  and  affect  prices;  viz.,  de- 
mand and  supply,  cost  of  production,  etc.  etc.  All 
this  is  perfectly  true  of  an  individual  article,  whose 
price  may  and  does  vary  from  time  to  time,  as  com- 


EFFECTS   OF   A   MIXED    CURRENCY.  199 

pared  with  other  commodities,  under  the  operation 
of  these  causes.  One  article  may  be  very  high, 
while  all  others  are  low,  or  the  reverse;  but  this 
does  not  tend  to  disprove  the  principle,  that  gen- 
eral prices  are  determined  by  the  quantity  of  the 
currency. 


CHAPTEK  X. 

EFFECTS    OF   A    MIXED   CURRENCY. 

WE  stated  two  principal  questions  in  regard  to 
mixed  currency: 

1st.  Does  it  perform  satisfactorily  the  functions 
of  money? 

2d.  What,  and  how  great,  are  its  effects  on  public 
interests,  beyond  the  proper  effects  of  value  cur- 
rency? 

In  the  four  chapters  immediately  preceding,  we 
have  discussed  the  lirst  question,  with  a  result  un- 
favorable to  such  a  currency.  We  now  approach 
the  second  of  these  questions, — What  are  the  effects 
of  mixed  currency. 

I.  A  mixed  currency  endangers  domestic  tran- 
quillity. This  is  a  proposition  which  we  shall  con- 
sider solely  with  reference  to  society  in  the  United 
States. 

That  mixed-currency  banks  can  never,  in  fact, 
fulfil  their  agreements,  if  called  on  to  do  so,  we  have 
already  shown;  and,  since  they  are  ever  liable  to 


200  EXCHANGE. 

such  calls,  there  is  constant  danger  from  this  source. 
At  any  moment,  there  may  reasonably  arise,  through 
this  cause,  such  general  dissatisfaction  among  the 
lower  classes  as  shall  tend  to  extensive  disturbances 
of  the  public  peace. 

This  danger  is  greatly  enhanced  by  the  fact,  that, 
within  the  last  forty  years,  there  has  been  created  a 
vast  system  of  savings  institutions,  which  receive 
the  money  individuals  are  disposed  to  deposit  with 
them,  and  promise  to  return  it  on  demand,  or  at 
short  notice;  generally  on  demand. 

Now,  should  any  cause  operate  by  which  confi- 
dence in  the  solvency  of  the  general  banking  system 
of  the  country  is  shaken,  it  will  naturally,  nay,  in- 
evitably happen  that  a  run  will  be  made  on  the 
savings  institutions.  These  can  only  meet  their  en- 
gagements by  drawing  on  the  banks.  But,  if  these 
have  all  their  resources  strained  to  meet  the  ordi- 
nary wants  of  the  business  community,  how  can 
the  drafts  of  the  savings  banks  be  met?  How  can 
currency  be  supplied  for  this  extraordinary  demand? 
This  question  can  only  be  intelligently  answered  by 
reference  to  the  condition  of  both  these  kinds  of 
institutions. 

We  will,  for  this  purpose,  take  the  currency  of 
Massachusetts  as  it  stood  in  1860: 

The  savings  banks  had  on  deposit $45,000,000 

deposits 30,000,000 

circulation 25,00.3,000 


The  currency  banks  had  j    . 


Total $100,000,000 

The  currency  banks  had  specie 6,500,000 

Difference $93,500,000 


EFFECTS    OF    A    MIXED    CURRENCY.  201 

Here,  then,  are  legal  immediate  demands,  upon 
the  currency  banks,  of  fifty-five  millions;  and,  upon 
the  savings  banks,  of  forty-five  millions.  Suppose 
there  should  arise  some  dissatisfaction,  or  public 
uneasiness,  which  should  prompt  to  a  run  on  both 
these  kinds  of  banks.  It  certainly  is  possible,  not 
to  say  probable.  Suppose  that  the  institutions  for 
savings  are  called  on  for  only  one-fourth  of  their 
deposits.  They  must  look  to  the  banks  for  eleven 
millions  of  currency  at  once.  The  banks  begin  to 
pay  out  their  bills;  but  the  specie  is  at  once  de- 
manded, and  of  that  they  have  but  six  and  one-half 
millions  against  their  own  immediate  liabilities  of 
fifty-five  millions.  They  could  not  stand  a  run 
of  two  days,  because  their  own  deposits  would  be 
drawn  in  specie  just  as  soon  as  the  real  state  of 
affairs  was  discovered.  The  banks  must,  therefore, 
suspend  at  once.  What  would  naturally  follow  in 
a  time  of  great  public  excitement,  when  the  in- 
terests of  some  party  or  faction  required  a  general 
breakiug-up  of  society? 

It  is  not  enough  to  evade  this,  by  saying  that 
such  an  event  has  never  happened,  though  the 
banks  have  several  times  suspended.  That  is  quite 
true;  yet  it  does  not  follow  that  it  never  will.  Pre- 
vious suspensions  have  originated  in  commercial 
causes.  Suppose,  on  the  other  hand,  a  run  were  made 
on  account  of  political  or  social  disturbances;  that  the 
laboring  class — factory  operatives,  railroad  gangs, 
the  servants  in  our  families — were  incited  to  demand 
their  deposits  in  the  savings  institutions.  Could 
they  not  prostrate  the  entire  currency  in  tweutj'-four 
hours,  by  merely  demanding  their  just  dues? 


202  EXCHANGE. 

Should  the  present  national  banks  resume  specie 
payments,  under  the  mixed-currency  system,  they 
will  be  exposed  to  the  same  dangers. 

II.  A  mixed  currency  has  a  demoralizing  influ- 
ence upon  a  community,  industrially  and  socially. 

If  what  has  been  said  in  regard  to  this  kind  of 
currency  is  correct,  such  an  influence  cannot  for  a 
moment  be  questioned.  If  it  excites  to  wild  and 
extravagant  speculation  at  one  time,  and  plunges 
its  victims  into  bankruptcy  and  ruin  without  fault 
at  another;  if  it  excites  hopes  and  expectations 
which  must  necessarily  come  to  disappointment 
and  distress;  if  it  increases  to  an  enormous  extent 
the  natural  risks  of  trade,  and  exposes  all  business 
operations  to  an  incalculable  hazard, — then  the  mer- 
cantile character  and  the  general  tone  of  morals 
cannot  but  be  unfavorably  affected. 

III.  A  mixed  currency  endangers  the  national 
safety  in  war. 

With  the  existing  ideas  and  institutions  of  society, 
and  while  no  preparations  are  made  in  time  of  peace 
to  prevent  the  recurrence  of  war,  but  every  effort 
to  meet  it,  and  thus,  of  course,  to  strengthen  and 
perpetuate  the  war  system,  it  becomes  a  matter  of 
great  interest  to  inquire  as  to  the  effects  of  a  mixed 
currency  on  the  safety  of  a  nation  in  the  event 
of  war. 

We  have  already  shown  that  a  mixed  currency 
is  greatly  affected  by  a  demand  for  specie  to  send 
abroad.  Hence,  as  war  must  always  call  for  an 
extraordinary  importation  of  foreign  merchandise 
and  materials,  and  as  such  extraordinary  importa- 
tion must  require  the  shipment  of  specie,  a  con- 


EFFECTS    OF    A    MIXED    CURRENCY.  203 

traction  and  panic,  or  speedy  suspension,  must  be 
the  certain  consequence. 

Again,  since  so  great  a  part  of  a  mixed  currency 
usually  consists  of  credit,  and  since  credit  rests 
wholly  on  confidence,  anything  which  impairs  the 
latter  compels  a  contraction  or  withdrawal  of  the 
currency. 

Now,  war  generally,  we  may  say  uniformly,  does 
this:  for  how  long  it  may  last,  how  great  may  be 
the  demand  for  money,  how  large  the  destruction 
of  capital,  and  what  the  final  issue,  must  be  a  matter 
of  doubt;  and  therefore  its  occurrence  always  im- 
pairs public  confidence  to  a  greater  or  less  extent. 

These  two  causes,  then,  are  at  once  brought  to 
bear  upon  a  mixed  currency  with  fatal  effect.  The 
result  has  always  been,  and  always  must  be,  that, 
under  such  circumstances,  the  mixed-currency  banks 
suspend;  because  their  circulation  cannot  be  with- 
drawn at  the  time  without  producing  universal 
bankruptcy,  annihilating  their  own  capital,  and 
stopping  the  wheels  of  government.  It  was  so 
in  England  during  the  war  with  Napolen ;  in  the 
United  States  during  the  war  of  1812,  and  in  the 
time  of  the  great  secession  movement. 

What  comes  in  consequence  of  all  this?  The 
nation  is  obliged  to  carry  on  its  vast  pecuniary 
operations  with  a  broken  down  currency.  This, 
of  course,  involves  the  finances  in  great  embar- 
rassment, vastly  increases  the  public  expenditures 
and  the  national  indebtness.  The  whole  financial 
system  of  the  country  is  crippled,  and  becomes  aa 
weak  as  its  currency. 

No  better  illustration  of  the  truth  of  this  state 


204  EXCHANGE. 

ment  was  perhaps  ever  afforded  than  that  found  in 
the  experience  of  the  United  States  during  its  great 
struggle.  The  country  was  suddenly  involved  in  a 
stupendous  war, — technically,  only  a  civil  war,  but, 
practically,  a  great  international  struggle,  so  vast 
were  its  dimensions,  so  strictly  was  it  sectional ;  a 
conflict  between  two  different  civilizations,  on  dif- 
ferent though  contiguous  portions  of  the  American 
continent. 

At  the  commencement  of  the  struggle,  the  cur- 
rency, as  we  have  before  said,  amounted,  circula- 
tion and  deposits,  to  four  hundred  and  sixty  mil- 
lions against  eighty-three  millions  of  specie.  Upon 
the  mere  threat  of  secession,  so  greatly  did  it  impair 
public  confidence  that  the  banks  at  the  South  began 
to  suspend ;  and  their  example  was  followed  until 
most  of  the  Western,  and  many  of  the  Eastern,  were 
in  a  state  of  suspension.  After  the  first  shock  had 
passed  b}T,  most  of  the  banks  in  the  loyal  States  re- 
sumed specie  payments;  but  the  large  demands  of  the 
government,  in  the  course  of  about  a  twelvemonth, 
compelled  a  universal  suspension  by  both  the  na- 
tional treasury  and  the  banks,  and  the  whole  country 
was  thrown  upon  an  irredeemable  paper  currency. 
All  this  happened,  not  because  the  currency  was  so 
redundant,  but  because  it  was  so  unsound.  Had  it 
been  based  in  full  on  specie,  this  disastrous  result 
would  have  been  avoided. 

In  time  of  war,  a  mixed  currency  always  becomes 
an  unmixed  paper  currency.  Being  at  all  times 
really  inconvertible,  any  disturbance  in  public  affairs 
which  destroys,  or  even  essentially  impairs  public 
confidence,  will  cause  a  general  suspension  of  the 


EFFECTS    OF    A    MIXED    CURRENCY.  205 

mixed-currency  banks,  and,  of  course,  of  the  govern 
ment,  and  the  substitution  of  a  credit  for  a  value 
currency. 

If  these  are  the  natural  and  inevitable  results  of  a 
mixed  currency  in  such  an  event,  is  it  not  true  that 
a  people  imposing  on  themselves  a  mixed  currency 
can  never  be  financially  "prepared  for  war?" 

IV.  A  mixed  currency  discourages  domestic 
manufactures,  disturbs  the  proper  relation  of  ex- 
ports and  imports,  and  puts  the  balance  of  trade 
against  the  people  employing  the  greater  proportion 
of  credit. 

These  effects  will  be  recognized  as  injurious  by 
all  classes  of  persons;  but  those  who  are  so  solici- 
tous for  the  positive  encouragement  of  domestic 
manufactures,  and  for  the  restraint  of  imports,  as 
to  favor  the  enactment  of  prohibitory  or  protective 
laws  imposing  duties  on  the  foreign  article,  will,  of 
course,  most  fully  appreciate  and  deeply  feel  this 
tendency  of  a  mixed  currency. 

The  course  of  this  will  be  best  observed  in  an 
illustration  from  the  manufacture  of  a  specific 
article : 

"Suppose  that  a  certain  kind  of  broadcloth  can  be  afforded  by 
the  foreign  manufacturer,  delivered  at  New  York,  for  two  dollars 
per  yard  ;  the  same  article  might  be  made  in  this  country,  but 
would  cost  two  dollars  a  yard,  without  any  profit  whatever.  Of 
course,  then,  we  cannot  afford  to  make  the  article.  The  govern- 
ment, in  order  to  encourage  its  production  here,  lays  a  duty  upon 
the  imported  article  of  fifty  cents  per  yard ;  but,  at  the  same  time, 
establishes  banks  which  manufacture  a  mixed  currency,  and  double 
the  natural  amount  of  money.  The  American  manufacturer  now 
proceeds  to  erect  his  mills;  but  wages  and  materials  have  so  ad- 
vanced in  price,  by  the  expansion  of  the  currency,  that  it  costs 
him  twenty-five  to  fifty  per  cent,  more  than  it  otherwise  would  have 

18 


206  EXCHANGE. 

done  He  builds  machinery ;  but  this  also  costs  him  proportionably 
high.  He  proceeds  to  purchase  raw  materials,  and  employ  labor 
in  manufacturing ;  b.ut  all  are  advanced  in  price  for  the  same  reason. 
His  own  expenses  for  living  are  also  greater ;  and,  should  he  be 
obliged  to  hire  money,  that  will  generally  be  found  to  have  ad- 
vanced in  price,  or  rate  of  interest.  Under  these  circumstances,  ho 
cannot  make  the  cloth  so  as  to  afford  a  profit;  and  it  will  not  be 
surprising  if  he  should  clamor  for  more  protection.  But  it  may 
l>e  said,  that  the  same  causes  that  have  advanced  the  expenses  of 
living,  and,  consequently,  of  labor,  will  equally  have  advanced 
the  price  of  broadcloth.  Not  so.  The  price  of  the  broadcloth 
will  be  determined  by  the  rate  at  which  it  can  be  afforded  by  the 
foreign  manufacturer ;  and  if  he  can  pay  the  duty  of  fifty  cents 
per  yard,  and  yet  obtain  a  fair  profit,  he  will  send  all  the  market 
demands. 

"  There  is  another  view  of  the  matter.  Suppose  we  would  ex- 
port our  plain  cottons,  for  example,  to  India.  We  there  meet  the 
English  article,  made  under  a  currency  more  valuable  than  our 
own,  which  can  consequently  be  afforded  for  less;  since,  with  the 
same  amount  of  the  money  of  India  (i.e.  value  money),  the  English 
manufacturer  can  pay  for  much  more  labor  in  England  than  the 
American  manufacture  can  in  America."* 

During  the  continuance  of  the  compromise  ta?*iff, 
established  in  1832,  and  which  terminated  in  1842, 
the  currency  varied  from  $11.82  to  $17.61  per 
capita,  equal  to  an  expansion  of  more  than  tif'ty 
per  cent.;  while,  during  the  same  period,  pricen 
(as  shown  by  table  V.,  pp.  191,  192)  fluctuated  to  a 
greater  extent.  The  variation  in  prices  was  larger 
even  than  the  percentage  of  protective  duties. 

So  the  tariff  of  1842,  which  began  to  take  effect 
in  1843,  when  the  currency  was  $6.18  per  capita, 
was  more  than  counterbalanced  by  the  expansion 
of  the  currency  to  $9.94  in  1846.  But  the  manu- 
facturer suffered  as  much  from  the  periodical  con- 


*  Walker  on  Money  and  Mixed  Currency,  p. 


EFFECTS    OF    A    MIXED    CURRENCY.  207 

tractions  as  from  the  expansions  that  preceded 
them;  for  while,  by  the  latter,  the  duties  were 
rendered  nugatory,  all  business  men  met  great 
losses  from  the  failures  and  the  general  derange- 
ment and  stagnation  which  the  former  produced. 
No  tariff  of  reasonable  extent,  such  as  the  people 
of  the  whole  nation  would  endure,  can  ever  place 
the  domestic  manufacturer  in  a  position  of  security 
and  of  reliable  profit,  while  competing  with  such 
an  immense  advance  in  prices  as  must  certainly 
accompany  an  expansion  of  the  currency.  The 
average  tariff  in  1868  was  forty-eight  per  cent.,  but 
the  cost  of  manufacturing,  owing  to  the  deprecia- 
tion of  the  currency,  was  some  sixty  per  cent.,  so 
that  the  duties  designed  to  be  protective  were  more 
than  neutralized. 

The  terrific  struggles  through  which  American 
manufacturers  have  passed,  ever  since  the  establish- 
ment of  the  first  tariff  in  1816,  have  been  caused, 
not  by  foreign  competition,  solely  or  mostly,  but  by 
a  false  and  delusive  domestic  currency. 

PROTECTION   AND    CURRENCY. 

There  is  a  still  more  striking  view  of  the  connec- 
tion between  protection  and  currency.  It  is  gen- 
erally believed  that  high  tariff  duties  restrict  the 
importation  and  consumption  of  foreign  merchan- 
dise. It  is  a  popular  cry,  that  "government  ought 
to  lay  heavy  dutie's,  so  as  to  prevent  an  adverse  bal- 
ance of  trade,  and  the  consequent  shipment  of  specie 
abroad." 

It  is  true,  as  a  principle,  that,  the  greater  the 


208  EXCHANGE. 

price,  the  less  the  consumption;  and  that,  as  the 
imposition  of  taxes  on  the  foreign  article  increases 
price,  so  it  must,  other  things  equal,  decrease  con- 
sumption. But  other  things  are  not  equal.  They 
have  not  been  so  in  this  country  during  this  centurv. 
The  facts  in  the  case  do  not  show  that  heavy  duties 
necessarily  reduce  the  consumption  of  foreign  arti- 
cles On  the  contrary,  it  is  found  that  the  largest 
importation  has  often  taken  place  during  the  ex- 
istence of  the  highest  tariffs.  Diagram  N"o.  3  will 
exhibit  the  relations  of  the  tariffs  to  the  amount  of 
imports,  from  1816  to  1861. 

The  tariff  of  1816,  the  first  ever  laid  for  protection, 
averaged  twenty-one  per  cent;  it  was  increased,  as 
we  have  seen,  to  forty-two  per  cent.,  and  became 
nearly  prohibitory  on  many  articles,  especially  the 
coarse  woollens  worn  by  the  slaves.  This  gave  such 
great  umbrage  to  the  cotton-growing  States  that 
the  compromise  tariff*  of  1832  was  enacted,  which 
brought  the  duties  down  to  twenty  per  cent,  in  1842. 
This  was,  unfortunately,  a  time  of  great  depression 
of  prices  and  trade,  growing  out  of  the  monetary 
revulsion  through  which  the  country  had  just  passed. 
A  strong  and  successful  appeal  was  made  for  an  in- 
crease of  duties;  and  the  tariff  known  as  that  of 
1842  was  established,  giving  high  protection.  This 
occasioned  so  much  dissatisfaction,  that,  after  four 
years,  the  rates  were  again  reduced  by  the  tariff"  of 
1846.  This  remained  in  operation  for  the  unpre- 
cedented period  of  eleven  years,  when  another  re- 
duction was  effected  by  the  tariff*  of  1857.  This 
lasted  four  years,  when  the  necessities  of  the  treas- 
ury, in  consequence  of  war,  induced  the  imposition 


rf^  Oi  Oi 


<JOO<£>  O  h- 


35 


EFFECTS   OF    A    MIXED    CURRENCY.  211 

of  higher  duties  in  1861,  since  which  they  have  been 
still  further  advanced. 


WHAT   THE   DIAGRAM    TEACHES. 

With  these  explanations  of  the  diagram,  we  arc 
prepared  to  inquire  into  its  teachings. 

Is  there  any  such  correspondence  between  the 
two  lines  as  to  indicate  that  one  is  governed  by  the 
other?  Does  it  appear  that,  as  the  tariff  rises,  im- 
portations fall  oft';  that,  as  it  is  lowered,  importa- 
tions increase?  Certainly  not.  We  can  perceive 
no  such  striking  correspondence  between  the  two 
lines  as  to  lead  us  to  believe  that  importations  are 
governed  greatly  by  the  tariff.  There  seems  to  be 
a  disturbing  influence  which  deranges  the  natural 
movement  of  the  line  of  consumption.  The  two 
lines  clearly  do  not  show  such  a  correspondence  as 
to  prove  that  importations  are  uniformly  governed 
by  the  tariff. 

IMPORTATION  AND  CURRENCY. 

A  reference  to  Diagram  No.  4  will,  we  think, 
show  the  disturbing  cause,  or  rather  by  what  law 
importations  are  controlled.  In  this  we  find  a  cor- 
respondence so  uniform  and  persistent  as  to  decide 
the  question,  beyond  dispute,  that  the  demand  for 
foreign  merchandise  depends  upon  the  quantity  of 
currency  in  the  country;  and,  as  that  increases  or 
diminishes,  so  does  the  consumption  of  imported 
articles.  The  immense  expansion  of  1836  carried 
the  consumption  up  to  $10.93  per  capita,  under  a 
tariff  of  31.6  per  cent  ;  while,  under  a  lower  one,  in 


212  EXCHANGE. 

1840,  the  consumption  was  but  $5.21.  Whereas,  if 
consumption  is  governed  by  the  tariff,  it  should 
have  been  higher  than  in  1836. 

According  to  the  natural  effects  of  the  tariff  (the 
enhanced  price  of  foreign  commodities),  consump- 
tion should  be  uniformly  highest  when  the  tariff  is 
lowest,  and  vice  versa.  We  have  seen  that  such  cor- 
respondence does  not  take  place.  "We  then  con- 
clude that  some  other  force  or  influence  operates  to 
neutralize  the  power  of  protective  duties,  and  even 
reverse  the  natural  effect.  The  last  diagram  proves 
the  existence  of  such  a  cause,  and  shows  its  effects 
on  imports. 

Hence  we  lay  it  down  as  a  principle  that  a  sound 
currency  is  more  important  as  affording  protection 
against  foreign  competition  than  a  high  tariff'. 


CHAPTER   XL 

EFFECTS    OF    A    MIXED    CURRENCY  (concluded). 

V.  A  MIXED  currency  causes  unnatural  and  ex- 
treme fluctuations  in  the  rate  of  interest. 

If  a  mixed  currency  is  in  its  nature  constantly  fluct- 
uating, at  one  time  very  redundant,  at  another  very 
scarce,  it  would  seem  to  follow,  as  a  necessary  conse- 
quence, that  the  rate  of  interest,  which  is  merely 
the  sum  paid  for  the  use  of  money,  or  currency, 
would  be  equally  so.  Practically,  we  find  that  such 
is  the  fact.  While  the  currency  is  in  the  process  of 
expansion,  and  is  enlarged  by  new  issues  from  day 


DIAGRAM    N°-  4. 

Showing  the  Volume  of  the  Currency  and  the  Imports 
for  Consumption  for  26  Years. 

460  Millions  of  Currency 


450- 
440 
430 
420 
410 
400 
390 


K60 
350 
340 
330 
320 


1859 


CJT 

B 

I 

54 

^                                                     R-J 

m 

Ja 

r 

EFFECTS    OF   A    MIXED    CURRENCY.  215 

to  day,  money  must  be  plenty,  and  the  rate  of  inter- 
est low. 

When  the  currency  has  become  largely  increased, 
and  speculation  has  been  engendered  by  the  rise  of 
prices,  the  demand  for  money  will  increase  faster 
than  the  supply,  and  the  rate  of  interest  will  begin 
to  advance. 

When  the  banks  have  arrived  at  that  point  at 
which  they  must  of  necessity  contract,  and  they  be- 
gin to  take  in  their  currency,  and,  of  course,  to  create 
a  scarcity  of  the  means  of  paying  debts,  then  the  rate 
of  interest  will  rise  to  a  very  high  point,  not  uufre- 
quently  to  four  or  six  times  its  natural  rate. 

The  indebtedness  which  the  expansion  has  en- 
couraged must  now  be  met,  at  all  events  and  at  any 
sacrifice.  Sales  of  property  cannot  be  made  for 
cash,  because  all  cash  resources  are  needed  to  meet 
existing  indebtedness,  rapidly  maturing;  and,  con- 
sequently, a  great  pressure  is  made  upon  the  money 
market.  The  severity  of  this  is  indicated  by  the 
rate  of  interest. 

Such  being  the  facts  in  the  case,  we  need  not  be 
surprised  to  find  that  the  highest  rates  of  interest 
are  paid  at  times  when  there  is  far  more  than  the 
average  amount  of  currency. 

On  the  other  hand,  when  indebtedness  has  been 
discharged,  both  by  the  banks  and  individuals,  and 
the  currency  reduced  to  very  moderate  dimensions, 
we  find  the  rate  of  interest  very  low.  Take  the 
years  1837  and  1857.  Interest  was  up  to  three  per 
cent,  per  month  ;  yet  there  was  a  greater  amount  of 
currency,  per  capita,  then  in  use,  than  ever  before. 
Take  the  years  1842-43,  for  an  opposite  example, 


OF  THE 

UNiVERSr 


216  EXCHANGE. 

when  there  was  less  currency  than  ever  before. 
Money  was  very  plenty  and  very  cheap. 

This  law  has  governed  the  rate  of  interest  at  all 
times  under  our  currency,  and  is  strikingly  ex- 
hibited in  our  Diagram  No.  5,  inserted  herewith. 

By  this  diagram,  we  see, — 

First.  The  frequent  and  extreme  fluctuations  in 
the  rate  of  interest. 

Second.  That  the  highest  rates  of  interest  occur 
when  there  is  the  greatest  expansion  of  the  cur- 
rency, as  witness  1836,  1839,  1854,  and  1857. 

Third.  That  the  lowest  rates  of  interest  are  f  m.  d 
where  there  is  the  smallest  amount  of  currency,  as 
in  1843-45. 

Fourth.  We  observe  some  remarkable  exceptions 
to  these  general  facts. 

In  1834,  we  find  the  interest  up  to  twenty-four 
per  cent,  while,  in  the  following  year,  it  was  down 
to  five.  This  is  easily  explained  by  those  cognizant 
of  the  facts.  The  United  States  Bank  then  in  exist- 
ence was  extremely  desirous  of  recharter;  and,  to 
secure  this,  it  was  thought  necessary  to  produce  a 
tremendous  pressure  in  the  money  market.  The 
result  was  a  high  rate  of  interest.  The  following 
year,  1835,  the  bank  took  the  opposite  course,  and 
interest  fell  below  the  natural  rate. 

In  1836,  there  was  a  great  expansion  of  the  cur- 
rency, as  shown  in  the  lower  line  of  the  diagram. 
Speculation  was  rife,  the  banks  could  not  meet  the 
demand  for  money,  and  interest  went  up  to  thirty 
per  cent.  In  1837,  the  banks  suspended,  then  is- 
sued freely,  and  interest  went  down  to  a  low  point. 
In  1838,  the  work  of  contraction  began ;  a  multi- 


DIAGRAM   Na  5. 

Showing  the  Fluctuations  in  the  Rate  of  Interest  and 

Volume  of  Currency. 


1839 


1857 


1836 

- 



1834 

- 

— 

- 

38 

1847 

53 

- 

1  — 

~33 

-J9 

,5-3 

- 

- 

- 

- 

42 

46 

48 

1 

- 

- 

- 

52 



_ 

- 

37 

i 



r 

56 

-ft 

32~ 

50  

44-r5 

'{•> 

40 

«T 

J 

58J 

1 

843 

jr 

ate  of  Interei 

1837 


EFFECTS    OF    A    MIXED    CURRENCY.  219 

tude  of  banks  in  the  West  and  South  failed,  and  the 
pressure  upon  the  solvent  banks  became  great;  in- 
terest went  up  to  eighteen  per  cent.  The  year  1839 
witnessed  still  greater  distress  for  money.  Resump- 
tion of  specie  payments  by  the  banks  began  to  take 
place,  and  consequently  a  great  contraction  of  the 
currency.  There  was  also  a  very  large  exportation 
of  specie  that  year;  and,  by  these  combined  causes, 
the  rate  of  interest  ran  up  to  thirty-six  per  cent.  In 
1840,  on  the  other  hand,  more  specie  was  imported 
than  exported.  The  indebtedness  of  the  country 
had  been,  in  great  measure,  discharged,  and  money 
was  plenty.  Interest  was  down  to  five  or  six  per 
cent.  In  1841,  there  was  again  an  export  of  specie, 
and  also  in  1842;  and  the  rate  of  interest  went  up 
to  nine  and  twelve  per  cent.  But,  in  1843,  the  low- 
est point  was  reached,  more  than  twenty  millions 
of  gold  were  imported,  and  money  was  a  drug.  In- 
terest was,  for  awhile,  almost  nominal.  Large 
amounts  were  negotiated  as  low  as  three  and  a  half 
per  cent. 

From  this  time  forward,  we  have  only  the  natural 
results  of  a  mixed  currency  in  its  fluctuations.  In 
1847,  the  rate  of  interest  was  high, — eighteen  per 
cent, — though  the  currency  was  not  redundant. 
This  was  the  year  of  the  Irish  famine ;  and  we  im- 
ported twenty-two  millions  of  gold  above  the  ex- 
ports. From  1849  to  1857,  the  currency  was 
constantly  increasing.  Severe  fluctuations  in  the 
money  market  took  place,  but  no  grand  revulsion 
until  1857,  when  so  great  was  the  inflation  of  the 
currency,  and  consequently  the  general  credits  of 
the  country,  that  an  explosion  took  place ;  interest 


220  EXCHANGE. 

going  up  to  thirty-six  per  cent.  All  these  facts  are 
significant,  and  form  an  essential  part  of  the  history 
of  mixed-currency  banking. 

Here  it  seems  proper  to  mention  the  remarkable 
fact,  that  the  rate  of  interest  is  now,  1871,  and  has 
been  for  some  time,  much  higher  upon  mortgages 
than  upon  business  paper.  Up  to  the  issue  of  legal- 
tender  notes,  loans  on  mortgage  could  uniformly 
be  negotiated  at  a  lower  rate  than  the  current  dis- 
count rate  at  the  banks.  When  the  latter  was  six 
to  eight  per  cent.,  the  former,  for  large  sums,  was 
often  but  five.  Now  the  case  is  reversed,  and  mort- 
gages are  being  made  at  seven  to  ten  per  cent,  in 
the  Eastern  States  and  much  higher  in  the  Western, 
while  money  is  plenty  on  call  or  short  time  at  four 
to  six.  The  reason  is  obvious.  Capitalists,  owing 
to  the  abnormal  condition  of  the  currency,  choose 
to  have  their  funds  where  they  can  command  them 
at  short  notice,  while  rents  being  very  high,  those 
wishing  for  houses,  stores,  etc.,  can  afford  to  pay  a 
high  rate  for  the  means  wherewith  to  build. 


UNEQUAL   EFFECTS  OF  MIXED   CURRENCY  UPON   DIFFER- 
ENT  INTERESTS. 

Unfavorable  as  the  influence  of  a  mixed  currency 
is  upon  the  general  industry  of  the  United  States, 
it  will  upon  examination  be  found  far  more  detri- 
mental to  some  branches  of  production  than  to 
others,  and  that  agriculture,  the  chief  interest  of 
the  nation,  is  by  far  the  greatest  sufferer.  The 
reason  of  this  can,  we  think,  be  made  sufficiently 
apparent. 


EFFECTS    OF    A    MIXED    CURRENCY.  221 

Other  things  equal,  the  general  average  of  prices 
is  determined  by  the  quantity  of  currency  in  circu- 
lation, and  prices  advance  or  recede  as  that  is  in- 
creased or  diminished.  A  particular  article  at  a 
particular  time,  owing  to  some  circumstance  con- 
nected with  its  production  or  the  demand  for  it, 
may  rise  or  fall  in  price  as  compared  with  other 
commodities,  but  the  general  prices  of  all  objects 
of  value  will  ever  depend  upon  the  quantity  of  cur- 
rency existing  in  the  country  in  which  they  are  pro- 
duced and  sold.  This  is  an  economic  law  as  certain 
as  any  of  the  laws  of  Nature. 

It  must  be  borne  in  mind,  however,  that  if  the 
currency  of  the  country  be  a  local  or  unnatural  one 
— that  is,  different  from  the  currency  of  commerce, 
which  is  gold  and  silver — it  will  accurately  measure 
only  those  commodities  which  are  wholly  produced 
and  consumed  within  the  country  where  such  local 
currency  is  used.  If  there  be  any  commodity  of 
which  the  country  necessarily  raises  a  surplus  that 
must  be  exported,  and  the  local  currency  is  in 
excess  of  its  natural  volume,  or  what  it  would  be  if 
composed  of  coin,  such  article  will  not  be  measured 
correctly  as  compared  with  all  others,  because  its 
price  depends  upon  its  value  for  shipment  to  a  for- 
eign market,  where  it  will  be  measured  by  the  gold 
standard.  Such  article  is  neither  raised  in  value  by 
expansion  nor  depressed  by  contraction  of  the  local 
currency.  The  reason  is  obvious.  There  cannot 
be  two  prices  for  the  same  thing  at  the  same  time, 
and  what  it  is  worth  for  shipment  will  determine 
the  value  of  the  whole  product,  whether  consumed 
at  home  or  sent  abroad. 

19* 


222 


EXCHANGE. 


On  the  other  hand,  all  articles  produced  and  con- 
sumed wholly  at  home,  like  boots  and  shoes,  farming- 
machines  and  implements,  furniture,  carriages  and 
the  like,  are  measured  by  the  existing  currency, 
without  reference  to  the  gold  premium,  except  to 
the  extent  that  the  materials  of  which  they  are 
composed  are  of  foreign  production,  upon  which 
the  gold  premium  has  been  charged.  All  these 
home-produced  and  home-consumed  articles  feel  the 
full  effects  of  a  redundant  currency,  however  great 
that  redundancy. 

The  position  of  the  farmer  or  planter,  and,  we 
may  add,  of  the  man  who  mines  for  the  precious 
metals  or  petroleum,  is  this:  The  commodities  he  is 
compelled  to  purchase  for  his  necessary  consump- 
tion are  raised  in  price  by  every  unnatural  expan- 
sion of  the  currency,  however  great  it  may  be, 
while  his  own  commodities  are  not  raised  in  price 
at  all  by  such  expansion.  This  may  be  seen  in  the 
facts  presented  in  the  following  table: 

TABLE     VI. 

Showing  the  Price  of  Flour  and  Cotton  from  1846  to  1859  inclusive 
(14  years),  with  the  Currency  per  Capita,  and  General  Prices  at 
corresponding  Dates. 


o.. 

-5  ' 

tf'.l 

3  4 

- 

•3  g 

rf 

„ 

*T    3> 

S  Q« 

2  S 

TEARS. 

.!§ 

S<| 

la 

TEARS. 

|| 

*C   ^ 

£3 

0    S 

&  •— 

£5 

Si 

ft* 

S* 

0** 

3s, 

(SPH 

184G. 

$5.06 

VA 

$9.94 

$16.69 

1853. 

$5.77 

lfti^ 

$13.65 

$22.47 

1847  . 

6.67 

8  2 

9.38 

20.82 

1854  . 

8.94 

9  2 

14.95 

•Jd.84 

1848  . 

5.96 

10.67 

16.53 

11855. 

8.76 

Q1^ 

13.93 

1849  . 

5.50 

8  2 

9.18 

16.45 

1856  . 

6.42 

lO1^ 

14.64 

•J5  '(12 

1850 

5.55 

12 

10.39 

16.20 

1857  . 

5.78 

14" 

15.50 

25.13 

1851  . 

4.52 

10 

11.86 

19.-I2 

1858  .  . 

4.30 

13 

11.55 

21.92 

1852. 

5.00 

9 

13.31 

21.42 

1859  .  . 

5.10 

ny2 

14.90 

22.11 

EFFLCTri    OF    A    MIXED    CURRENCY.  223 

This  table  proves  conclusively  that  while  prices 
in  general  conform  remarkably  to  the  existing  quan- 
tity of  currency,  flour  and  cotton  do  not  rise  and 
fall  with  its  fluctuations.  Flour,  for  example,  in 
1846,  with  a  currency  of  9.94,  was  at  $5.06;  while 
in  1851,  when  the  currency  had  risen  to  11.86,  an 
advance  of  twenty  per  cent.,  flour  was  at  $4.50,  a 
decline  of  ten  per  cent.  Cotton  was  at  12  cents, 
under  a  currency  of  10.39,  in  1850,  and  but  9  cents, 
under  a  currency  of  14.95,  in  1854. 

If  the  views  here  presented  are  sound  (and  they 
are  certainly  based  upon  indisputable  facts),  we  have 
.established  a  most  important  principle,  viz.,  that 
while  no  industrial  interest  is  benefited  by  credit 
expansions  of  the  currency,  one  branch  of  produc- 
tion, and  that  by  far  the  largest,  is  most  essentially 
and  unjustly  injured,  and  made  to  bear  by  far  the 
greater  part  of  the  loss  inseparable  from  the  use  of 
a  fluctuating  and  defective  standard  of  value;  specu- 
lators and  the  issuers  of  false  currency  being  the 
only  gainers  by  its  use. 

The  truthfulness  of  the  principle  laid  down  is 
more  strikingly  shown  at  the  present  than  any  former 
period. 

The  prices  of  agricultural  products  are  now  (1871) 
nearly  or  quite  as  low,  and  in  some  cases  lower,  than 
in  1860.  Superfine  flour  has  been  quoted  during 
the  present  year  in  New  York  at  $4.45  to  $4.95,  and 
mess  pork,  worth  in  1860  $18.25,  has  been  sold  at 
$14.50. 

Wheat  has  been  no  higher  in  1871  with  a  currency 
(circulation  and  deposits)  of  $30  per  capita,  than  in 
1860  with  a  currency  of  $14  50  per  capita. 


224  EXCHANGE. 

If  we  contrast  prices  of  the  farmer's  staples  with 
those  of  articles  wholly  produced  and  consumed  at 
home,  like  boots  and  shoes,  farming  tools  and 
machines,  furniture,  carriages,  and  the  like,  which 
are  measured  by  the  existing  currency  and  varied 
in  price  some  50  to  75  per  cent.,  we  shall  realize  how 
greatly  this  class  of  persons  is  injured;  yet  these 
results  are  simply  an  exaggeration  of  an  ordinary 
mixed  currency  expansion  such  as  the  country  has 
long  been  familiar  with. 

But  this  is  not  all  the  damage  the  agriculturist 
suffers,  because  while  he  gets  no  more  for  his  pro- 
ducts, the  wages  he  pays  are  nearly  50  per  cent, 
higher  than  in  1860. 

The  productive  industry  of  the  country  may  be 
divided  into  three  principal  kinds, — viz.,  agricultural, 
manufacturing,  and  mercantile, — the  first  employing 
a  lurge  majority  of  the  whole  population,  and  of 
course  producing  a  large  surplus  of  commodities  to 
be  sent  abroad,  while  the  products  of  the  second  are 
consumed  almost  entirely  at  home.  The  great  staple 
of  agriculture  is  corn  (to  use  the  English  term)  in  its 
varieties, — wheat,  maize,  rye,  oats,  barley,  etc.  The 
average  value  of  either  oije  of  these  determines  the 
value  of  all  the  others,  because  if  any  one — wheat, 
for  example — brings  a  higher  price  in  proportion  to 
its  cost,  the  production  of  that  article  is  certain  to 
be  increased  until  reduced  in  price  to  an  equality  with 
the  rest. 

It  may  be  thought  that  cotton  must  be  an  excep- 
tion to  what  we  have  laid  down,  since  its  price  is 
now  greater  than  before  the  war.  It  is  worth  at  pres- 


MANUFACTURES.  225 

ent,  say  20  cents  per  pound,*  while  from  1850  to  1860 
the  average  was  but  10J  cents.  This  higher  price, 
however,  is  owing  to  the  fact  that  the  production  of 
cotton  has  been  greatly  diminished  by  the  effects  of 
the  late  contest  in  demoralizing  labor.  If  the  pro- 
duct were  now  as  large  in  proportion  as  in  1860,  the 
price  would  doubtless  be  as  low.  The  amount 
raised  in  1850  was  2,096,706  bales;  in  1860  it  waa 
4,669,770  bales, — an  increase  of  130  per  cent,  in  ten 
years.  Had  the  production  of  cotton  gone  on  at  the 
same  rate  of  increase,  the  crop  of  1870  would  have 
reached  10,740,471  bales!  With  such  a  crop,  or 
even  two-thirds  of  that  quantity,  would  prices  now 
be  higher  than  in  1860  ?  Cotton,  we  may  rest  as- 
sured, will  not  be  found  an  exception  to  the  law 
which  governs  prices  when  its  production  has  been 
fully  restored.  The  planter  will  then  have  as  much 
reason  to  complain  of  the  currency  as  the  wheat- 
grower.  There  will  then  be  as  much  occasion  for 
"  despondency"  at  the  South  as  there  now  is  at  the 
West. 

MANUFACTURES. 

The  manufacturing  interests  of  the  country  pre- 
sent a  strong  contrast  to  those  of  agriculture,  the 
products  of  the  former  being  measured  wholly  by 
the  local,  the  latter  by  the  general,  standard  of  value. 
Hence  it  is  comparatively  a  matter  of  indifference 
to  the  manufacturer  how  much  the  cost  of  his  goods 
is  enhanced  by  defective  currency,  because  he  can 
obtain  correspondingly  high  prices.  The  people 

*  It  has  been  as  low  as  15  cents  during  the  year  1871. 


226  EXCHANGE. 

must  have  his  wares  and  pay  him  a  profit.  It  is 
only  when  he  would  send  his  goods  abroad  that  he 
feels  the  effect  of  the  false  standard  of  value  under 
which  he  has  produced  his  commodities.  He  then 
finds  that,  his  goods  having  cost  him  much  more 
than  they  ought  to  have  done,  he  cannot  compete  in 
foreign  markets  as  he  could  before  the  war.  In  1860 
our  export  of  cotton  manufactures  was  about  eleven 
millions, — now  only  one-third  that  amount.  Thus, 
our  export  of  cotton  fabrics,  which  ought  to  be  large, 
— at  least  as  much  as  twenty-five  millions,  according 
to  the  rate  of  increase  for  several  years  before  the 
war, — is  now  hardly  worthy  of  notice.  Although 
thus  deprived  of  an  outlet  for  their  goods,  and  suf- 
fering many  other  disadvantages  from  unsound  cur- 
rency, manufacturers  are  able  to  achieve  a  good 
degree  of  prosperity  compared  with  agriculturists.  In 
fact,  they  gain  by  the  low  price  of  breadstuffs,  be- 
cause they  are  enabled  to  support  their  workmen  at 
a  lower  rate.  Protected  by  high  tariff-duties  from 
foreign  competition,  they  have  the  entire  command 
of  the  home  market,  while  the  farmer,  depending 
upon  the  foreign  demand  for  the  sale  of  his  surplus, 
must  sell  his  whole  crop  at  the  gold  value. 

TRADE   AND    TRANSPORTATION. 

The  mercantile  and  transportation  class,  whose 
business  is  transferring  and  exchanging  the  values 
that  others  have  created,  are  but  partially  affected 
by  the  present  state  of  the  circulating  medium.  They 
make  all  their  transactions  under  the  same  standard 
of  value,  and  thus  secure  their  profits  without  diffi- 


TRADE   AND    TRANSPORTATION.  227 

culty.  The  aggregate  sales  of  merchants  are  larger 
in  amount  than  formerly,  because  prices  are  so  much 
higher ;  but,  as  an  offset  to  this,  their  expenses  are 
as  much  increased  as  their  gross  profits ;  and  besides, 
their  profits  when  realized  are  in  the  currency  of  the 
country,  worth  for  the  purchase  of  commodities,  the 
building  of  houses,  stores,  or  ships,  but  a  little  more 
than  half  what  it  was  when  the  currency  was  sound. 
In  addition  to  this,  the  mercantile  classes  are  con- 
stantly exposed  to  the  danger  of  a  great  financial 
crisis,  which  may  come  at  any  time,  and  is  certain 
to  come  sooner  or  later,  unless  suitable  measures  are 
seasonably  taken  for  the  gradual  restoration  of  the 
currency  to  par  with  gold.* 

*  A  part  of  this  argument  is  taken  from  an  article  by  the  author 
published  in  Lippincott's  Magazine  for  Nov.,  1871. 


228  EXCHANGE. 


CHAPTER   XII. 

FALLACIES   REGARDING   A    MIXED    CURRENCY. 

Fallacy  1st  That  by  means  of  mixed-currency 
banks,  the  capital  of  a  country  is  greatly  increased. 

Capital  is  the  portion  of  wealth  employed  in  re- 
production. Money  is  one  form  of  capital.  To  the 
banker  or  money-lender,  it  ma}^  be  his  entire  capital; 
but,  to  the  merchant,  manufacturer,  or  agriculturist, 
it  is  capital  only  as  the  instrument  by  which  he  ob- 
tains those  commodities  which  constitute  his  main 
capital,  upon  which  he  does  his  work,  and  from 
which  he  makes  his  profits. 

Of  the  great  mass  of  the  world's  capital,  money 
is  but  a  small  fraction.  Credit  is  no  part  at  all. 
Money  is  that  portion  of  capital  which  is  employed 
in  reproduction,  for  the  special  purpose  of  effecting 
easily  that  exchange  of  values  which  itself  confers 
value,  because  done  by  labor.  To  the  greater  part 
of  mankind,  money  is  only  the  means  by  which 
capital  is  obtained  from  those  who  have  it. 

Now,  were  it  not  for  mixed-currency  banks,  all 
the  capital  loaned  in  the  form  of  money  would  be 
reliable.  Mixed  currency,  for  the  time  being,  takes 
the  place  of  actual  money,  and  becomes  an  instru- 
ment by  which  capital  is  transferred.  But  its  nature 
is,  as  we  have  seen,  to  issue  in  greater  volume  than 
necessary  for  the  wants  of  commerce,  and,  by  this, 
to  disturb  the  business  of  the  country,  cause  an 
unnatural  rise  of  prices,  an  increase  of  imports,  a 


MIXED-CURRENCY  FALLACIES.         229 

decrease  of  exports,  and  finally  a  call  for  real  money, 
which  causes  the  withdrawal  of  all  the  extra  currency 
at  the  very  moment  when,  owing  to  the  increased 
indebtedness  it  has  caused,  it  is  more  needed  than 
at  any  other  period.  It  will  then  be  discovered 
that  this  excess  was  not  capital,  or  actual  value,  but 
credit,  in  the  guise  of  capital,  which  the  mixed- 
currency  banks  had  issued,  and  which  they  were 
compelled  to  withdraw  when  most  wanted. 

Fallacy  2d.  That  mixed  currency  is  cheaper  than 
a  value  currency,  more  economical,  and  therefore 
more  desirable. 

Specie  costs  much  labor.  Paper  costs  but  little 
in  comparison  :  therefore,  as  it  answers  the  same 
purpose,  and  is  more  conveniently  handled,  it  con- 
fers a  benefit.  This  is  a  popular  idea. 

Money,  we  have  said,  is  an  instrument,  nothing 
else;  we  do  riot  eat,  drink,  or  wear  it.  All  tools, 
instruments,  or  appliances  should  be  as  cheap  as 
possible,  provided,  always,  they  are  -safe  and  efficient. 

A  paper  cap  is  cheaper  than  one  of  leather  or 
cloth  ;  but  is  it  as  durable  and  comfortable?  If  not, 
although  in  the  first  instance  it  costs  less,  it  would 
not  be  desirable  for  use.  The  same  principle  applies 
to  money. 

If  what  we  hnve  already  said  of  a  mixed  currency 
is  true,  it  is  wanting  in  those  qualities  which  would 
make  it  cheaper  than  a  value  currency,  because  it 
does  not  discharge  fully  or  perfectly  a  single  func- 
tion of  money.  It  deranges  trade,  because  it  does 
not  obey  the  laws  of  trade.  It  increases  credit 
enormously,  by  its  expansions,  because  it  is  itself 
credit,  and  impairs  it  by  its  contractions. 

20 


^  EXCHANGE. 

But  the  gain  by  this  substitution  of  credit  for 
value  in  the  currency  is  insignificant,  when  com- 
pared with  the  great  interests  of  trade.  The  aver- 
age of  paper  circulation  in  the  United  States  from 
1850  to  1859  inclusive,  ten  years,  was  not  more 
than  $6.25  per  capita.  If  from  this  we  deduct  the 
average  specie  per  capita  for  the  same  time  held  by 
the  banks,  viz.  $2.25,  we  shall  have  left  $4.00,  as 
the  amount  for  each  individual  of  credit  circulation. 
On  that  amount,  the  saving,  if  any,  is  to  be  made. 
If  we  compute  the  interest  at  six  per  cent,  we  have 
twenty-four  cents  as  the  annual  saving  to  each  indi- 
vidual by  the  use  of  credit  currency ;  a  saving  worth 
the  attention  of  the  statesman,  if  it  could  be  properly 
and  safely  made,  but  paltry  in  comparison  with  the 
losses  and  disturbances  incident  to  a  mixed  cur- 
rency. 

Some  have  supposed  that  a  great  saving  is  made 
by  the  use  of  paper  money  instead  of  coin.  But  it 
is  not  necessary  to  have  a  mixed  currency  in  order 
to  avoid  abrasion  of  the  coin.  A  mercantile  cur- 
rency, based  wholly  on  specie,  would  equally  avoid 
loss  from  this  cause,  and  yet  secure  all  the  advan- 
tages of  a  value  currency. 

But,  in  fact,  the  abrasion  of  paper  currency  is 
far  greater  than  that  of  gold ;  that  is,  it  costs 
more  to  keep  out  one  hundred  dollars  of  currency 
than  it  does  to  keep  out  one  hundred  dollars  in 
coin.  Gold  and  silver  circulate  themselves;  but 
it  requires  a  formidable  machinery  to  circulate 
paper  promises, — a  machinery  far  more  costly  than 
the  slow  wear  of  the  precious  metals.  No  banker 
would  venture  to  say  that  a  paper  currency  can  bo 


MIXED-CUKRENCY    FALLACIES.  231 

maintained   for  one-twentieth  of  one  per  cent,  per 
annum.* 

This  argument  of  economy  in  the  use  of  credit 
money  was  presented  by  Dr.  Adam  Smith  ninety 
years  ago.  Even  then  the  danger  was  apparent, 
though  the  system  had  not  been  developed  to  its 
proper  character  and  consequences.  Had  the  writer 
witnessed  the  great  convulsions  from  1797  to  1866, 
he  would  have  dismissed,  as  wholly  an  idle  fancy, 
the  scheme  of  substituting  the  "Daedalian  wings" 
(say,  rather,  the  Icarian  wings)  of  credit  for  the 
u  solid  ground"  of  value.  He  says  : 

"The  gold  and  silver  money  which  circulates  in  any  country 
may  very  properly  be  compared  to  a  highway  ;  which,  while  it  cir- 
culates, and  carries  to  market  all  the  grass  and  corn  of  the  country, 
produces  itself  not  a  single  pile  of  either.  The  judicious  operations 
of  banking,  by  providing,  if  1  may  be  allowed  so  violent  a  meta- 
phor, a  sort  of  wagon-way  through  the  air,  enable  the  country  to 
convert,  as  it  were>a  great  part  of  its  highways  into  good  pastures 
and  cornfields,  and  thereby  to  increase  very  considerably  the  an- 
nual produce  of  its  land  and  labor.  The  commerce  and  industry 
of  the  country,  however,  it  must  be  acknowledged,  though  they 
may  be  somewhat  augmented,  cannot  be  altogether  so  secure,  when 
they  are  thus,  as  it  were,  suspended  upon  the  Daedalian  wings  of 
paper  money,  as  when  they  travel  about  upon  the  solid  ground  of 
gold  and  silver.  Over  and  above  the  accidents  to  which  they  are 
exposed  from  the  unskilfulness  of  the  conductors  of  this  paper 
money,  they  are  liable  to  several  others,  from  which  no  prudence 
or  skill  of  those  conductors  can  guard  them." 

Fallacy  3c?.  That  the  use  of  mixed  currency  has 
been  the  cause  of  the  great  prosperity  of  the  United 

States. 

*  By  a  statement  of  the  Controller  of  the  Currency,  Sept.  30, 
1869,  it  appears  that  the  actual  working  expenses  of  the  national 
banks  amount,  irrespective  of  all  taxes,  to  3-6  per  cent,  per  annum. 


232  EXCHANGE. 

This  is,  doubtless,  a  very  idle  assumption,  un- 
worthy of  discussion.  Yet  thousands  are  influenced 
by  it.  A  coincidence  is  taken,  by  force,  for  a  cause. 

The  United  States  have  prospered  greatly,  and  at 
the  same  time  there  has  been  a  large  consumption 
of  intoxicating  drinks.  Surely  this  does  not  prove 
that  the  prosperity  of  the  country  was  caused  by  the 
use  of  liquor.  Has  the  country  flourished  by  reason 
of,  or  in  spite  of,  such  use?  Intoxicating  liquors 
stimulate  men  to  greater  effort;  therefore  they  in- 
crease production.  Mixed  currency  stimulates  ex- 
changes, increases  prices,  promotes  speculations; 
therefore  it  is  favorable  to  production. 

Such  is  the  reasoning,  and  it  is  equally  good  in 
each  case.  In  both,  the  misdirection  of  effort  and 
the  certain  depression  of  energy  are  kept  out  of 
sight.  Mixed  currency  never  gave  strength  or  wis- 
dom or  skill  or  economy  to  any  human  being,  and 
therefore  never  can  have  increased  the  products  of 
the  country,  or  enlarged  its  wealth,  in  any  manner 
whatever.  Its  unnatural  excitements  are  followed 
by  unnatural  prostration.  Men  do  not  work  more, 
but  they  trade  more,  speculate  more,  and  squander 
more,  during  the  flood-time  of  an  expansion.  More 
is  expended  for  foreign  luxuries;  there  is  more  ex- 
travagance and  waste,  which  superficial  observers 
take  to  be  indications  of  prosperity.  In  the  time  of 
reckoning,  trade  is  as  much  depressed  as  it  was 
falsely  stimulated. 

Fallacy  4/A.  That  there  is  not  gold  and  silver 
enough  in  existence  to  form  a  currency  adequate  to 
the  rapidly  extending  operations  of  commerce;  and 
therefore  resort  must  be  had  to  paper  substitutes. 


MIXED-CURRENCY   FALLACIES.  233 

Twenty  years  ago,  this  was  regarded  as  an  unan- 
swerable argument  in  favor  of  credit  currency.  The 
recent  discoveries  of  apparently  inexhaustible  mines, 
and  the  immense  production  already  realized,  have 
to  a  great  extent  silenced  the  senseless  clamor  once 
raised  on  this  point.  Yet  the  assertion  is  as  true 
now  as  ever.  Only  about  one-half  of  the  whole 
amount  of  precious  metals  in  possession  of  man, 
from  the  fifteenth  to  the  middle  of  the  nineteenth 
centuries,  was  required  for  coin ;  the  balance  re- 
maining in  plate  and  ornaments,  mostly  in  Europe 
and  the  East. 

The  reason  of  such  general  error  on  this  point  is 
found  in  the  totally  inadequate  ideas  prevailing  as  to 
the  amount  of  currency  needed  for  trade.  People 
are  informed  that  the  annual  products  of  the  United 
States,  for  example,  are,  say  four  thousand  millions; 
and  they  fancy  that  fo-ur  thousand  millions  of  cur- 
rency, or  something  near  that  sum,  is  necessary  to 
transfer  this  immense  production:  whereas  only  a 
very  small  fraction  of  the  amount  is  required. 

Mr.  Col  well,  in  his  "Ways  and  Means  of  Pay- 
ment," estimates  that  all  the  securities  issued  in  the 
United  States,  including  "  promissory  notes,  bank- 
notes, bank  credits,  and  other  currency, — in  short, 
all  which  intervene  between  buyer  and  seller," — 
amount  to  one  thousand  million  dollars  every  three 
months,  or  four  thousand  million  dollars  per  year. 
Yet  we  know  that  all  this  may  be  wiped  off  with, 
at  the  most,  not  more  than  four  hundred  million 
dollars  of  currency,  or  about  one-tenth  of  the  aggre- 
gate indebtedness. 

Now,  that  the  people  of  the  United  States  could 
20* 


234  EXCHANGE. 

not  command  sufficient  gold  to  furnish  a  currency 
equal  to  their  wants  is  preposterous,  since  the  yearly 
production  of  California,  for  the  last  twelve  years, 
has  amounted  to  fifty  millions, — in  all,  say  six  hun- 
dred millions  of  gold;  a  sum  about  double  our  re- 
quirements for  a  sound  currency. 

Instead  of  using  this,  we  find  that  the  amount  of 
specie  in  all  the  banks  in  1848,  the  time  of  the  dis- 
covery of  the  gold  mines,  was  forty-six  millions,  and 
that  on  the  first  of  January,  1860,  the  amount  was 
eighty-three  millions  ;  showing  that,  of  all  the  gold 
obtained  from  California,  only  thirty-seven  millions, 
or  about  one-sixteenth,  had  found  its  way  into  the 
bank  currency  of  the  country.  In  the  mean  time, 
the  total  exports  of  the  nation  had  increased  from 
one  hundred  and  fifty-four  to  three  hundred  and 
sixty  millions,  or  more  than  double.  Again,  the 
amount  of  specie  per  capita  in  bank  for  ten  years 
prior  to  the  discoveries,  say  from  1839  to  1848  inclu- 
sive, was  $2.07  ;  while  for  the  succeeding  ten  years, 
1849  to  1858  inclusive,  it  was  but  $2.10, — showing 
an  actual  gain  of  but  three  cents  to  each  individual,  not- 
withstanding the  accessions  of  gold  to  the  amount  of 
six  hundred  millions,  or  twenty  dollars  per  capita. 

In  connection  with  the  fallacy  we  are  now  con- 
sidering, it  may  be  proper  to  speak  of  the  opinion, 
often  expressed,  that  the  amount  of  currency  must 
of  necessity  be  enlarged  proportionally  to  the  ex- 
tension of  trade  and  the  increase  of  population. 

The  experience  of  Great  Britain,  the  most  com- 
mercial nation  in  the  world,  entirely  contradicts 
this  theory,  for  while  its  trade  and  population  have 
trebled  within  the  last  fifty  years,  its  bank  currency, 


MIXED  CURRENCY   FALLACIES.  235 

its  paper  circulation,  is  no  greater  than  in  1820,  and 
3'et  its  money  market  is  as  well  supplied  as  ever. 

The  phenomenon  is  easily  explained.  The  vari- 
ous substitutes  now  provided,  and  the  great  improve- 
ment made  in  the  "mechanism  of  exchange,"  have 
so  vastly  increased  the  rapidity  of  circulation  and 
the  effectiveness  of  currency  as  to  make  any  increase 
of  its  volume  unnecessary. 

This  principle  is  as  applicable  to  the  United  States 
as  to  Great  Britain,  but  not  perhaps  to  an  equal  ex- 
tent on  account  of  its  large  territory  and  more  scat- 
tered population.  The  rapid  extension  of  railroads 
and  telegraphs  will,  however,  in  a  great  degree  re- 
move even  this  difference. 

And  here  it  may  not  be  irrelevant  to  present 
the  interesting  tiict  that  there  is  a  remarkable  uni- 
formity in  the  amount  of  paper  circulation  in  pro- 
portion to  population  in  three  of  the  principal  com- 
mercial nations.  In  the  United  States,  in  1860,  when 
the  currency  was  redeemable,  it  was  $6.48  per 
capita;*  in  Great  Britain,  in  1868,  it  was  $6.54;  in 
France,  $6.63. 

This  correspondence  in  the  amount  of  paper  issues 
per  capita  in  the  three  most  commercial  countries 
in  Christendom  is  at  least  a  striking  fact,  whether  it 
results  from  accidental  circumstances,  or  the  natural 
operation  of  the  laws  of  trade. 

Fallacy  5th.  That  mixed-currency  banks  are  par- 
ticularly favorable  to  those  who  have  little  capital, 
and  must,  of  necessity,  depend  upon  credit,  since 
they  increase  the  facilities  for  obtaining  capital. 

*  The  irredeemable  paper  circulation  of  1871  is  c  ver  $18  per  capita. 


236  EXCHANGE. 

Whatever  impairs  credit  and  increases  the  risk 
of  loaning  must  be  unfavorable  to  those  who  most 
need  to  borrow.  Other  things  being  equal,  it  must 
be  .easier  to  get  credit  in  a  community  where  only 
one  in  twenty  fails  than  where  one  in  five  fails;  the 
less  the  risk,  the  less  the  hesitation  in  giving  credit. 
Now,  does  the  credit  money  of  a  mixed  currency 
diminish  the  risk  of  general  credits?  Far  from  it. 
Common-sense  teaches,  and  statistics  prove,  that  the 
hazards  of  credit  must  be  just  in  proportion  to  the 
credit  money  of  any  country.  Instead,  therefore,  of 
being  favorable,  it  is  adverse  to  all  persons  wanting 
the  use  of  capital.  The  hazards  of  credit  in  the 
United  States  are  at  least  four  times  as  great  as  they 
would  be  under  a  value  money  currencj7". 

A  mixed  currency,  far  from  being  advantageous 
to  persons  needing  credit,  has  an  entirely  opposite 
influence,  and  is  constantly  tending  to  reduce  the 
number  of  those  who  can  obtain  sufficient  to  par- 
ticipate in  the  profits  of  business. 

Fallacy  6th.  That,  without  a  mixed  currency, 
banks  could  not  exist,  and  all  the  advantages  now 
derived  from  them  would  be  lost. 

Such  is  the  general  impression  among  the  masses 
of  the  people.  Propose  to  them  the  expulsion  of 
the  credit  element — that  is,  to  forbid  the  issue  of 
notes  beyond  the  specie  in  hand,  the  reply  comes 
at  once  that  there  would  be  no  object  in  banking, 
and  we  should  have  no  banks ;  but  banking  may  be 
carried  on  to  any  degree,  and  in  the  most  profitable 
manner,  without  the  issue  of  a  single  bank-note. 
This  is  done  in  Great  Britain,  to  a  wonderful  extent, 
by  joint-stock  and  private  banks.  Only  a  very  small 


MIXED-CURRENCY   FALLACIES.  237 

proportion  of  all  the  banks  in  the  United  Kingdom 
issue  their  own  notes;  yet  they  make  dividends  so 
large  as  to  astonish  us. 

As  an  illustration  of  this  species  of  banking,  we 
mention  the  fact  that  while  the  Bank  of  England, 
with  a  capital  of  fifteen  millions,  has  deposits,  pub- 
lic and  private,  of  but  twenty  millions  on  an  aver- 
age, the  three  principal  banks  of  London,  with  an 
aggregate  paid-up  capital  of  only  £2,320,000,  have 
on  deposit  £46,158,105;  and  that  while  the  Bank 
of  England  declares  a  dividend  of  about  six  or  seven 
per  cent.,  these  banks  make  an  average  profit  of 
about  thirty  per  cent.,  and  furnish  the  commercial 
and  manufacturing  interest  a  much  larger  amount 
of  capital  than  the  Bank  of  England  itself.  And 
yet  they  manufacture  not  a  dollar  of  currency.  We 
present  the  following  statement  of  their  condition  : 

Net  profits  Percentage 

Paid-up  capital.        Deposits.           for  6  mos  per  aim. 

London  and  Westminster   £1,000,000        £15,629,095            £147,816  29-56 

Union 720,000           16,472,279              114,324  38'11 

London  Joint  Stock     .    .        600,000           14,056,731                80,573  2£'86 

£2,320,000        £46,158,005  £342,713 

We  see  by  these  facts  that  the  issue  of  a  paper 
circulation  is  no  necessary  part  of  the  most  extended 
and  profitable  banking.  Foreign  bankers  pay  in- 
terest upon  deposits,  and  are  never  restricted  by 
legal  enactments.  This  is  true  banking. 

Of  all  kinds  of  banks,  with  their  branches,  there 
are,  in  the  United  Kingdom,  about  five  thousand,  a 
small  portion  only  of  them  being  banks  of  issue. 
Yet,  as  a  general  rule,  all  make  large  dividends, — 
the  largest  dividends  being  by  those  banks  which 
issue  no  notes  whatever. 

20* 


238  EXCHANGE. 

This  fact  gives  sufficient  proof,  if  any  were  needed, 
that,  in  order  to  make  large  profits,  it  is  not  neces- 
sary for  a  well-established,  well-managed  bank  to 
manufacture  currency. 

Banks  belong  to  civilization.  A  bank  is  an  insti- 
tution intrusted  by  one  class  of  persons  with  money 
to  loan  another  class.  The  existence  of  such  insti- 
tutions implies  the  existence  of  capital  and  confi- 
dence; and  these  indicate  culture  and  social  eleva- 
tion. Banks  are  labor-saving  machines,  of  vast 
power  and  utility.  They  exist  of  necessity. 

No  well-informed  man  can  be  opposed  to  banking 
institutions  conducted  in  a  proper  manner.  It  would 
be  as  reasonable  to  object  to  railroads. 

Fallacy  8th.  That  a  mixed  currency  can  be  effect- 
ually regulated  by  law. 

Many  of  the  mischiefs  arising  from  a  mixed  cur- 
rency are  so  obvious  that  all  persons  desire  their 
removal,  and  naturally  resort  to  legal  enactments 
for  that  purpose.  The  statute-books  of  every  State 
in  the  American  Union  contain  laws  for  the  regula- 
tion of  mixed-currency  banks.  Commissioners  have 
been  appointed  in  many  States,  and  a  Bureau  of 
Currency  established.  Ingenuity  has  been  taxed  to 
devise  regulations  by  which  these  evils  may  be  re- 
moved or  modified, — with  what  success  ?  They 
have  never  succeeded. 

There  is  but  one  defect  in  a  mixed  currency;  and 
that  is,  it  wants  the  element  of  value.  There  is  no 
sufficient  remedy,  but  to  supply  this,  by  providing 
that  banks  shall  issue  no  promises  of  their  own  for 
which  they  have  not  in  possession  the  actual  values 
they  promise.  But  this  would  be  to  change  the 


MIXED-CURRENCY    FALLACIES.  239 

whole  system,  to  make  the  currency  mercantile,  and 
to  cut  off  all  the  profits  arising  from  the  issue  of 
bank  debt  as  currency.  The  only  complete  remedy, 
then,  is  restoration;  that  is,  a  return  to  the  original 
design  and  purpose  of  banking. 

Fallacy  8th.  That  it  is  for  the  interest  of  the  pub- 
lic that  the  banks,  in  times  of  panic  or  stringency, 
should  be  enabled  to  "  stave  off"  suspension. 

On  the  contrary,  this  can  be  obviated  only  to  the 
misfortune  of  the  business  community.  A  severe 
pressure  for  money,  as  in  the  United  States  in  1847, 
1851,  and  1854,  is  experienced,  and  yet  the  banks 
do  not  suspend.  But  how  do  they  avoid  it?  By 
throwing  the  strain  upon  the  mercantile  and  busi- 
ness community.  This  they  can  always  do  to  a 
limited  extent,  and  thus  maintain  their  own  credit; 
but  it  is  done  at  an  enormous  amount  of  embarrass- 
ment and  loss  to  all  engaged  in  business  affairs. 

The  banks  may  not  only  escape  damage,  but  may 
even  profit  very  much  by  a  pressure,  if  it  does  not 
come  to  be  a  panic ;  for  it  greatly  enhances  the  rate 
of  interest.  The  rate  of  interest  in  the  Bank  of 
England,  from  1848  to  1856,  did  not  average  three 
and  a  half  per  cent.  In  1857,  when  there  was  a 
severe  pressure,  the  bank  was  able  to  obtain  ten  per 
cent.  It  had  a  harvest  of  profit,  and  the  same  in  1866. 

Practically,  mixed-currency  banks  expand  as  often 
and  as  much  as  possible ;  and,  when  the  reaction 
comes,  hold  on  to  specie  payments  and  a  high  rate 
of  interest,  until  the  bankruptcy  of  their  debtors 
begins  to  be  so  alarming  as  to  endanger  their  own 
securities.  They  then  suspend,  allow  their  debtors 
to  pay  up  in  the  notes  they  cannot  redeem  in  specie, 


240  EXCHANGE. 

and  thus  settle  the  indebtedness  of  themselves  and 
the  public.  There  is  no  plan  or  design  to  do  this; 
but  such  is  the  natural  result,  and,  on  the  whole,  a 
highly  satisfactory  one  to  the  banking  interest. 

Fallacy  9th.  That,  whatever  the  effect  upon  other 
classes,  bank  stockholders  at  least  are  made  richer 
by  an  expansion  of  the  currency. 

That  this  is  not  generally  true  will  appear  on 
examination. 

An  expansion  of  the  currency  raises  prices :  that 
we  take  to  be  indisputable.  If  so,  the  stockholder 
may  be  made  richer  or  poorer  by  the  cause  that 
increases  his  bank  dividends. 

For  example :   suppose  he  has  an  income  from   various 

sources  of $5000 

And  from  bank  stock 1000 

Total  income $6000 

In  consequence  of  an  increase  of  circulation  by  the 
banks,  he  gets  an  increase  of  $500,  equal  to  fifty  per 
cent,  on  his  bank  dividends,  making  his  whole  in- 
come $6500.  But  prices  and  commodities  have  ad- 
vanced twenty-five  per  cent,  in  consequence  of  the 
inflation.  What  he  would  have  bought  before  for 
$6000,  now  costs  him  $7500.  The  result,  then,  is, 
that  the  bank  stockholder  has  gained  $500  in  his 
dividends,  and  lost  $1500  in  his  purchases;  so  that 
he  is  actually  $1000  poorer,  reckoning  the  real 
satisfactions  or  commodities,  etc.,  which  he  obtains 
from  his  income. 

It  is  only  when  a  man's  income  is  derived  almost 
wholly  from  bank  dividends  that  he  can  gain,  by  the 
fact  that  they  have  been  increased  in  consequence 
of  currency  expansion. 


MIXED-CURRENCY   FALLACIES.  241 


WHO    GAINS    BY   FICTITIOUS    CURRENCY? 

But  it  may  be  asked,  if  stockholders  do  not  gain 
by  bank  expansions,  who  does?  There  is  an  in- 
crease of  dividends  :  wlio  gets  the  advantage? 

This  inquiry  brings  us  face  to  face  with  one  of 
the  prime  mysteries  of  currency,  and,  indeed,  of 
political  economy.  "  Who  gains  by  fictitious  cur- 
rency?" Before  answering  this,  we  will  ask,  WHAT 
is  gained  by  a  currency  not  consisting  of  actual 
value?  We  answer,  nothing  but  price.  Prices  are 
changed  by  it.  Values  are  not  created  :  they  remain 
the  same.  By  the  change  in  the  standard  or  measure 
from  a  value  to  a  mixed  currency,  prices  no  longer 
accurately  determine  value.  Prices  are  increased. 
Those  who  hold  commodities  while  prices  are  ad- 
vancing, gain  by  such  an  advance.  Debtors  may 
discharge  their  obligations  with  less  value.  Specu- 
lators may  make  favorable  operations.  The  value 
of  every  commodity  has  been  interfered  with ;  the 
integrity  of  every  contract  to  pay  value  has  been 
impaired. 

Such  is  the  "  consummation"  of  mixed  currency. 
u  It  is  a  grand  system  of  insidious  swindling."  So 
said  "Hardcastle"  (who  was  no  other  than  Mr.  Page 
of  the  Bank  of  England)  more  than  forty  years  ago  ; 
and  what  that  shrewd  observer  then  discovered  is 
apparent  now  to  all  who  enter  into  a  full  examination 
of  the  subject.* 

*  Richard  Cobden  repeated  this  remark  of  Mr.  Page  to  the 
author  at  Manchester,  more  than  twenty  years  since,  with  his 
emphatic  approval. 

21 


242  EXCHANGE. 


CHAPTER    XIII. 

MERCANTILE     CURRENCY. 

WE  have  thus  far  examined  three  different  kinds 
of  currency.  1st.  Money,  consisting  of  the  precious 
metals :  this  we  have  found  to  be  admirably  adapted 
to  the  wants  of  trade,  except  that,  for  large  ex- 
changes, it  is  too  cumbersome,  requiring  much 
labor  and  time  in  use.  2d.  Inconvertible  paper, 
or  credit  currency,  which,  we  have  seen,  never  has 
been,  and  in  the  nature  of  things  never  can  be,  kept 
at  par  with  coin,  and  is  therefore  highly  injurious 
when  introduced  into  commerce.  3d.  A  mixed 
currency,  or  partly  convertible  paper,  which,  as  it 
is  constantly  varying  in  quality  and  quantity,  cannot 
be  relied  on  as  a  medium  of  exchange  or  a  standard 
of  value. 

We  now  corne  to  the  consideration  of  a  mercantile, 
or  substitute  currency. 

It  is  quite  apparent  that  a  currency  is  needed 
which  shall  combine  all  the  advantages  of  the  two 
kinds  first  mentioned,  without  the  disadvantages 
which  we  have  seen  to  be  inseparable  from  the 
third.  We  want  the  reliability  of  coin  and  the 
convenience  of  paper.  With  these  perfectly  united, 
there  is  nothing  more  to  desire.  We  have  no  oc- 
casion to  increase  the  currency  beyond  its  natural 
volume,  because  that  would  impair  the  standard 
of  value.  We  wish  only  to  have  so  much  currency, 


MERCANTILE    CURRENCY.  243 

and  of  such  a  kind,  as  the  laws  of  trade  demand, 
and,  if  undisturbed,  will  always  secure. 

Is  such  a  currency  practicable? 

In  answering  this  question,  we  remark  that  it 
would  not  be  an  entire  novelty,  since  experiments  of 
this  character  have  been  made  most  successfully 
upon  a  large  scale,  and  extending  over  several 
centuries. 

The  Bank  of  Genoa,  established  in  the  early  part 
of  the  fourteenth  century,  received  deposits  and 
issued  bills  or  notes  of  circulation  extensively;  but 
"  these  bills  and  deposits  represented  coins  of  full 
weight  and  value,  and  were  payable  on  demand  in 
such  coins."  They  formed  a  currency  adapted  to 
the  wants  of  that  city  when  the  great  mart  of  trade 
for  all  Europe,  and  were  continued  in  use  more 
than  live  hundred  years.  The  bank  was  abolished 
when  Genoa  was  united  to  the  French  Empire. 

The  Bank  of  Amsterdam  received  deposits  in 
coin  and  gave  a  receipt  (recipisse)  for  the  same. 
These  receipts  formed  a  circulation  for  large  mone- 
tary transactions: 

The  Bank  of  Hamburg,  established  in  1619,  has 
the  same  general  character,  and  confers  immense 
benefits  on  the  trade  of  Amsterdam,  issuing  its  ob- 
ligations only  to  the  extent  of  its  specie. 

We  have  referred  to  these  individual  banks,  not 
to  give  a  history  of  their  operations,  but  to  show 
that  the  essential  principle  of  a  substitute  currency 
has  been  long  recognized,  and  thoroughly  tried  in 
practice. 

To  keep  gold  and  silver  coin  in  bank,  while  they 
are  performing  all  their  functions  outside,  with  per- 


244  EXCHANGE. 

feet  accuracy  and  vastly  augmented  force, — this  is 
what  a  mercantile  currency  seeks  to  realize.  It 
is  beyond  doubt  that  this  can  be  more  effectually 
done  in  the  present,  than  in  any  preceding  age,  since 
confidence  and  intelligence  are  more  general  and 
controlling. 

England  affords  the  best  illustration  of  the  neces- 
sity for  such  a  currency  at  the  present  day,  when 
the  commerce  of  the  world  is  perhaps  one  hundred 
times  greater  than  when  Genoa  was  its  chief  mart. 
The  monetary  condition  of  England  is  peculiarly 
appropriate  in  this  connection,  because  its  present 
currency  is  probably  the  best  in  quality  of  all  the 
mixed  currencies,  and  one  with  which  the  public 
generally  are  well  acquainted.  Yet,  notwithstand- 
ing this  superiority,  we  find  the  currency,  on  which 
depend  the  trade  and  commerce  of  the  British  Em- 
pire, in  a  state  of  continual  fluctuation,  and  a  matter 
of  unceasing  solicitude:  the  bank  reserve,  by  which 
its  discounts  must  be  governed,  varying  from  ten 
millions  in  1846,  to  one  and  a  half  millions  in  1847; 
twelve  and  a  half  millions  in  1849,  to  four  millions 
in  1854  ;  one  and  a  half  millions  in  1857,  to  thirteen 
and  a  half  millions  in  1858;  with  corresponding 
variations  in  the  rates  of  interest. 

Why  all  this  fluctuation  and  anxiety  ?  Why  this 
constant  watching  of  the  amount  of  bullion  in  bank  ? 
Why  this  nervous  solicitude  about  the  reserve? 

There  is  only  one  reason  ;  and  that  is,  that  the 
Bank  of  England  has  issued  from  ten  to  fifteen  mil- 
lions sterling  of  notes,  for  which  it  holds  no  specie! 
That  is  all  the  difficulty.  It  has  disturbed  the  laws 
of  value,  by  issuing  that  as  money  which  had  only 


MERCANTILE  CURRENCY.          245 

the  promise  of  value;  and,  consequently,  has  ex- 
pelled the  actual  value  from  the  country  where  it 
was  needed. 

And  what  does  the  Bank  of  England  gain  by 
all  this?  Why,  the  interest  upon  the  excess  of  its 
notes  over  the  bullion  in  bank ;  that  is,  if  its  notes 
are  twentj7  millions,  and  it  holds  eight  millions  of 
specie,  then  on  twelve  millions  it  obtains  interest, 
which,  at  say  four  per  cent.,  as  an  average,  is  equal 
to  four  hundred  and  eighty  thousand  pounds  per 
annum.  So,  then,  it  is  for  this  paltry  consideration 
that  the  currency  of  Great  Britain  is  kept  in  constant 
fluctuation,  and  the  business  community  in  continual 
anxiety.  This  gain  is  equivalent  to  about  four  pence 
per  head  for  the  population  of  the  nation.  Yet  for 
this  the  public  must,  on  an  average,  suffer  to  the 
amount  of  many  millions  per  annum. 

The  people  of  the  United  States,  having  a  much 
larger  proportion  of  the  credit  element  in  their  cur- 
rency, suffer  still  more. 

The  remedy  for  all  these  evils  is  a  very  simple 
one,  and  perfectly  feasible  whenever  government 
sees  fit  to  make  the  needful  enactments.  Not 
only  so,  but,  from  the  nature  of  the  case,  there 
need  be  no  violent  change.  "  The  experiment  may 
be  made  as  cautiously  as  the  most  conservative  can 
desire. 

If  the  principles  we  have  previously  laid  down, 
and  the  practical  results  which  follow,  are  such  as 
we  have  stated,  then  no  one  nation  need  to  hesitate 
in  making  this  experiment  for  fear  that  other  nations 
may  not  follow  their  example;  for  the  community 
which  has  the  soundest  currency  will,  other  things 

21* 


246  EXCHANGE. 

equal,  have  the  most  profitable  industry  and  the 
most  advantageous  commerce. 

There  need  be  no  legal  restriction  whatever  upon 
the  issue  of  such  a  currency,  and  it  matters  not  how 
voluminous  it  may  be ;  since  it  will  be  composed  in 
fact  of  value  money,  will  obey  the  laws  of  value,  and, 
of  course,  will  regulate  itself.  There  would  then  be 
no  expansions  or  contractions,  except  from  the  legiti- 
mate operations  of  trade;  and  the  currency  of  the 
nation  would  be  perfectly  sound.  Notes  may  be 
safely  issued,  of  any  denominations,  and  to  any 
amount;  still  it  would  be  desirable  that  no  small 
notes  should  be  put  out,  because  it  is  better  that  the 
people  should  have  the  coin,  so  far  as  practicable  and 
convenient,  in  their  own  possession,  rather  than  that 
it  should  be  needlessly  accumulated  in  banks,  where 
it  would  be  more  exposed  to  danger  in  case  of  a 
popular  outbreak,  or  a  financial  coup  d'ttat. 

That  legitimate  banking  may  be  made  sufficiently 
profitable  under  such  a  system,  we  have  seen  in  the 
case  of  the  joint-stock  banks  of  England.  All  banks, 
like  them,  should  be  authorized  to  receive  deposits, 
and  allow  such  an  interest  upon  them  as  they  might 
choose  to  pay.  If  there  were  no  issue  of  promises 
as  currency,  which  in  the  nature  of  the  case  it  was 
impossible  to  make  good,  there  would  be  no  danger 
in  allowing  them  to  borrow  and  loan  money  on  any 
terms  they  pleased. 

There  would  be  no  occasion  to  enact  that  such  a 
currency  as  we  propose  should  be  received  in  pay- 
ment of  dues.  It  would  take  care  of  its  own  repu- 
tation. It  would  be  good  as  gold,  and  easier  in  use; 
and  it  therefore  would  circulate  itself.  Of~such  a 


FREE    BANKING.  247 

currency  it  might  be  said,  in  the  language  of  Mr. 
Burke,  "  It  is  of  value  in  commerce,  because  in  law 
it  is  of  none." 

It  would  only  be  necessary  to  secure  a  gradual 
substitution  of  the  better  circulation  in  place  of 
the  old. 

If,  in  carrying  such  a  measure  into  practical  opera- 
tion, it  should  appear  that  there  were  banks  which 
could  not  make  good  dividends,  such  institutions 
would  be  discontinued  of  their  own  choice,  as  not 
actually  required  by  the  wants  of  the  business  com- 
munity. Their  capital  would  be  paid  back  without 
any  essential  loss  to  the  stockholders.  Those  who 
were  concerned  in  their  management  would  of  course 
be  obliged  to  seek  other  employments,  more  bene- 
ficial to  the  country,  and  perhaps  equally  so  to  them- 
selves. •  The  amount  of  disturbance  so  produced 
would  not  exceed  that  occasioned,  many  times,  by 
the  invention  of  a  new  description  of  machinery. 

FREE    BANKING. 

Much  has  been  said,  at  different  times,  of  the  de- 
sirableness of  free  banking.  Of  the  propriety  and 
rightful  ness  of  allowing  any  person  who  chooses  to 
carry  on  banking,  as  freely  as  farming  or  any  other 
branch  of  business,  there  can  be  no  doubt.  But  it 
is  not,  and  can  never  be,  expedient  or  right  to  au- 
thorize by  law  the  universal  manufacture  of  currency. 
While  banking,  as  at  present,  means  the  issuing  of 
inconvertible  paper,  the  more  it  is  guarded  and  re- 
stricted the  better.  But  when  such  paper  is  for- 
bidden, and  only  notes  equivalent  to  so  much  coin 


248  EXCHANGE. 

are  issued,  banking  may  be  as  free  as  brokerage. 
There  is  not  the  slightest  reason  why  any  banker, 
making  loans,  should  engage  in  the  manufacture  of 
currency.  It  no  more  appertains  to  his  vocation 
than  to  that  of  the  merchant.  On  the  other  hand, 
there  is  the  most  manifest  impropriety  and  danger 
to  himself  and  the  public  in  his  doing  so.  His 
business  leads  him,  of  necessity,  to  incur  great 
risks;  and  this  being  well  known,  as  soon  as  failures 
become  frequent,  as  they  will  when  there  is  a  great 
pressure  for  money,  the  banker  will  be  suspected, 
and  his  depositors  begin  to  withdraw  their  funds,  at 
the  very  moment  when  he  is  least  able  to  spare 
them.  All  this  is  inevitable ;  and  therefore  no  one 
taking  such  risks,  and  exposed  to  such  contingen- 
cies, should  be  allowed  by  law  to  issue  his  promises 
as  money. 

GOLD    NOTES. 

Fortunately,  while  it  is  thus  improper  that  bank- 
ers or  banking  institutions  should  be  intrusted  with 
the  important  function  of  issuing  notes,  there  is  not 
the  slightest  necessity  for  their  doing  so.  Gov- 
ernment very  properly  certifies  to  the  weight  and 
fineness  of  the  national  coin;  and  it  is  equally  incum- 
bent upon  the  government  to  certify  to  the  sound- 
ness of  the  paper  circulation,  which  convenience 
requires  instead  of  the  coin  itself.  It  should  receive 
the  gold  of  the  people,  and  give  its  certificates  there- 
for; and  those  certificates  (of  all  the  denominations 
required)  would  form  a  circulating  medium,  per- 
fectly reliable,  unfluctuating,  and  well  adapted  to 
all  the  purposes  of  trade. 


GOLD    NOTES.  249 

To  do  this,  government  need  assume  no  new  func- 
tion ;  for  it  already  issues  this  very  kind  of  certifi- 
cates for  deposits  of  specie.  They  are  called  "  gold 
notes,"  and  circulate  as  such.  When  the  specie 
standard  is  restored,  all  the  notes  in  circulation  will 
be  gold  notes,  government  being  the  trustee  for  hold- 
ing the  coin.  This  would  not  give  any  new  power 
to  the  government,  or  confer  any  additional  political 
influence.  Being  custodian  merely,  with  no  patron- 
age to  bestow,  no  loans  to  make,  no  accommodations 
to  grant,  there  could  be  no  occasion  to  fear  that  the 
currency  of  the  country  would  be  swayed  by  parti- 
san politics. 

And  this  important  change  may  be  effected  with- 
out any  convulsion  in  the  money  market,  or  any 
interruption  of  the  trade  and  industry  of  the  nation, 
by  the  enactment  of  a  law  requiring  a  gradual  with- 
drawal of  the  existing  circulation.  And  the  con- 
traction required  may  be  made  an  entirely  voluntary 
one  on  the  part  of  the  people  so  far  as  the  treasury 
notes  (greenbacks)  are  concerned,  by  providing  for 
the  monthly  issue  of  compound  interest  notes  in 
their  stead,  convertible,  after  a  given  time,  into 
treasury  bonds,  at  the  option  of  the  holder. 

The  national  banks,  on  their  part,  might  be  re- 
quired to  take  in  their  circulation  at  a  certain  rate 
per  annum,  and  allowed  to  receive  pro  rata  their 
bonds  now  held  as  security  by  the  government,  thus 
supplying  themselves  with  reliable  capital  with 
which  to  accommodate  the  business  public.  This 
being  accomplished,  all  restrictions  as  to  paying  in- 
terest upon  deposits,  all  requirement  to  hold  specie 
for  the  redemption  of  notes,  and  all  taxation  imposed 


250 


EXCHANGE. 


for  their  franchise,  or  privilege  of  issuing  paper 
money,  might  be  removed,  and  the  banks  have  the 
whole  field  of  legitimate  and  profitable  operations  at 
their  entire  command.  They  would  suffer  no  detri- 
ment, while  the  trade  and  industry  of  the  nation 
would  gain  immensely. 

TABLE   VII. 

Characteristics  of  the  Different  Currencies. 


KIND. 

COMPOSI- 
TION. 

CIRCULA- 
TION. 

STABILITY. 

CONVE- 
NIENCT 
IN  USE. 

CONVERTI- 
BILITY. 

AS  A   STAND- 
ARD or 
VALUE. 

Specie 

Precious 
metals 

Universal 

Perfectly 
reliable 

Cumber- 
some in 
large 
amounts 

Needs  no 
conversion 

Correct  and 
invariable 

Credit 
Mixed 

Paper  based 
on  credit 

Local  and 
arbitrary 

Liable  to 
depreciation 

Conve- 
nient 

Inconverti- 
ble 

False 

Paper  based 
on  coin 
and  credit 

Local  and 
conven- 
tional 

Constantly 
fluctuating 

Conve- 
nient 

Only  par- 
tially con- 
vertible 

Defective 
and  variable 

Mercan- 
tile 

Gold  notes 
based  whol- 
ly on  coin 

Local  and 
conven- 
tional 

Perfectly 
reliable 

Conve- 
nient 

Fully  con- 
vertible 

Correct  and 
invariable 

CHAPTER  XIV. 

THE    NATIONAL    CURRENCY   OF   THE    UNITED    STATES. 

UAVING  given  an  extended  analysis  of  mixed  cur- 
rency as  it  has  heretofore  existed  in  the  United 
States,  it  seems  proper  that  we  should  notice  the 
important  changes  that  have  taken  place  in  that 
currency. 

In  the  month  of  Februa^,  1863,  Congress  enacted 
a  law  establishing  a  national  and  uniform  system  to 


NATIONAL    CURRENCY    OF    U.  S.  251 

supersede  the  State-bank  system.  We  propose  to 
inquire  in  what  respect  it  differs  from,  and  in  what 
respect  it  is  like,  the  latter. 


DIFFERENCES. 

It  differs  from  the  old  system,  in  that, — 

(1)  Being  created   by  national  instead  of  State 
authority,  it  is  entirely  within  the  control  of  Con- 
gress, which,  according  to  the  last  section  of  the 
National  Bank  Act,  may  at  any  time  "alter,  amend, 
or  repeal  it." 

(2)  It  differs,  in  that  all  the  notes  issued  are  guaran- 
teed as  to  their  ultimate  redemption  by  the  government 
of  the  United  States.     This  provision  we  presume 
to  be  without  any  precedent ;  for  the  government 
is  not  simply  custodian,  holding  security  for  these 
notes,  as  formerly  in  New  York  and  some  other 
States,  on  the  safety-fund  principle,  where  stocks 
were  deposited  to  secure  the  circulation,  but  it  abso- 
lutely guarantees  the  final    payment  of  all   these 
notes  in  full. 

Every  banking  association,  on  its  organization, 
must  deliver  to  the  Treasurer  of  the  United  States 
the  bonds  of  the  United  States  bearing  interest,  and 
is  then  entitled  to  receive  from  the  Controller  of 
the  Currency  circulating  notes  of  different  denomi- 
nations, in  blank,  equal  -in  amount  to  ninety  per 
cent,  of  the  current  market  value  of  the  bonds  so 
transferred,  but  not  exceeding  the  par  value  of  such 
bonds.  In  case  the  notes  issued  by  the  banks  are 
not  paid  by  them  according  to  promise,  the  Con- 
troller may  sell  the  bonds  left  as  security,  and 


252  EXCHANGE. 

redeem  the  notes,  making  up  to  the  holders  of  the 
same  any  deficiency  there  may  be  in  the  securities. 
This,  it  will  be  seen,  does  not  secure  the  immediate 
convertibility,  but  the  ultimate  redemption,  of  the 
circulation. 

(3)  It  differs,  again,  in  that  these  notes  are  legal 
tender  in  payment  of  "  taxes,  excises,  public  lands, 
and  all  other  dues  to  the  United  States,  except  for 
duties,"  and  also  are  legal   tender  by  the  United 
States  in  payment  of  all  salaries  and  other  demands 
owing  by  the  United  States,  except  interest  upon 
the  public  debt;  but  they  are  not  a  legal  tender  as 
between  other  parties. 

(4)  Unlike  the   State-bank   notes,  those  of  the 
national  banks,  owing  to  the  provision  just  men- 
tioned, have  a  nearly  uniform  value  in  all  parts  of  the 
United  States,  and  are  therefore  generally  acceptable. 

(5)  They  differ   also   in  this,  that   the   national 
banks  are  compelled  by  law  to  keep  on  hand  a  cer- 
tain proportion  of  "  lawful  money"  to  their  circula- 
tion and  deposits.     In  specified  cities,  this  propor- 
tion is  fixed  at  twenty-five  per  cent.;  in  all  other 
places,  at  fifteen. 

Under  the  State  systems,  there  was  no  legal  obli- 
gation on  the  banks  to' keep  any  specie  whatever, 
except  in  a  few  cases,  as  in  Louisiana  and  (recently) 
in  Massachusetts,  and  one  or  two  other  States.  But 
this  provision  in  regard  to  the  national  banks  is 
practically,  to  a  great  extent,  only  a  nominal  matter, 
because  the  law  provides  that  "  bank  balances"  (due 
from  one  bank  to  another)  shall  be  deemed  to  be 
lawful  money;"  and  therefore,  MS  these  balances 
may  be  created  fictitiously  for  the  very  purpose,  the 


NATIONAL   CURRENCY   OF   U.  S.  253 

clause  obliging  the  banks  to  keep  a  certain  propor- 
tion of  "lawful  money"  with  which  to  redeem  their 
notes  is  nearly  a  nullity.  However  real  these  bank 
balances  may  be,  they  are  not  specie,  but,  as  we 
have  before  shown,  constitute  the  most  perilous 
and  explosive  element  of  a  mixed  currency.  This 
is  one  of  the  great  defects  of  the  law,  and,  until  it 
is  removed  by  the  repeal  of  this  provision,  would 
alone  make  the  system  a  dangerous  and  unreliable 
one.  The  object  of  requiring  any  specie,  or  lawful 
money,  is,  that  the  currency  may  be  made  more 
reliable;  but,  so  far  from  giving  strength,  every 
banker  knows  that  these  balances  are  a  cause  of 
weakness  in  time  of  panic. 

(6)  Another  important  difference  between  the 
past  and  present  currency  is  that  in  the  former 
the  security  of  both  circulation  and  deposits  was 
the  same,  while  with  the  latter  the  circulation  is 
guaranteed  by  the  national  government,  but  the 
deposits  have  no  security  except  the  stability  of  the 
bank  in  which  they  are  made. 

Lastly,  the  national  differ  from  the  old  State 
banks  in  this,  that  the  latter  had  almost  their  en- 
tire capital  to  loan  to  the  business  community, 
while  the  new  banks  have  little  or  none  at  all, 
having  loaned  their  capital  at  the  outset  to  the  gov- 
ernment, by  the  purchase  of  its  bonds. 

RESEMBLANCES. 

The  new  currency  resembles  that  of  the  old  State 
banks,  in  that  it  will  be  a  mixed  currency,  with  all  its 
characteristics,  when  specie  payments  are  restored. 

22 


254  EXCHANGE. 

(a)  It  will  expand  and  contract  from  the  same 
causes,  and,  so  far  as  can  be  seen,  with  the  same 
violence  and  to  an  equal  extent,  and  consequently 
will  be  as  fluctuating  as  the  currency  it  is  designed 
to  supersede,  except  in  so  far  as  a  larger  proportion 
of  specie  shall  be  held  for  its  redemption. 

(b)  It  will  be  an  equally  delusive  and  false  standard 
of  value,  having  in  itself  but  a  small  proportion  of 
value. 

(c)  It  will  raise  prices  and  cause  speculation  when 
in  the  process  of  expansion,  and  depress  prices  and 
produce  bankruptcies  when  contracting. 

(d)  It  will  create  an  unnatural  extension  of  credits 
at  one  time,  and   a   corresponding  contraction  at 
another,  producing  great  vibrations  in  the  rate  of 
interest. 

(e)  It  will  derange  the  natural  current  of  trade 
from  time  to  time,  causing  an  increase  of  imports 
and  a  decrease  of  exports,  and  thus  forcing  an  ex- 
port of  specie  to  meet  an  unnatural  balance. 

(/)  It  will  counteract  the  influence  of  both  natural 
and  artificial  protection,  and  retard  the  normal 
growth  of  home  manufactures. 

Lastly,  it  will  create  panics,  and  cause  frequent 
suspensions  of  all  the  banks  in  the  country. 

It  may  be  thought  that  the  fact  that  the  govern- 
ment guarantees  the  national-bank  notes  will  pre- 
vent a  run  upon  the  banks;  but  that  will  be  found 
an  entire  mistake.  Panics  are  created  because 
money  is  wanted  to  pay  notes  and  discharge  im- 
mediate obligations,  not  because  the  people  fear 
that  the  banks  are  insolvent. 


NATIONAL   CURRENCY  OF   U.  S.  255 


PANIC    OP   1873-4. 

The  prediction  at  the  bottom  of  the  last  page, 
made  in  March,  1873,  was  fully  accomplished  in 
the  following  September,  when  a  sudden  and  fear- 
ful panic  occurred,  and  a  general  suspension  of 
the  banks  followed,  with  the  natural  and  necessary 
derangement  of  every  department  of  trade  and 
industry. 

Regarded  purely  in  the  light  of  science,  this  was 
a  most  noteworthy  event.  It  had  no  precedent  in 
history,  since  no  other  country  ever  had  a  monetary 
circulation  of  the  same  character,  consisting  of 
irredeemable  legal  tender  notes  of  the  government 
and  the  notes  of  two  thousand  banks,  redeemable 
in  the  aforesaid  irredeemable  legal  tenders. 

As  this  currency  had  been  in  existence  for  some  ten 
years,  it  was  thought  by  many  persons  that  a  panic 
was  impossible  under  such  a  system ;  yet  the  most 
sudden  and,  for  the  time  being,  most  disastrous  con- 
vulsion took  place  ever  known ;  and  it  came,  how- 
ever unexpected  by  the  multitude,  in  obedience  to 
the  natural  laws  of  trade,  acting  upon  an  abnormal 
and  redundant  paper  circulation.  So  far  from  pre- 
venting an  explosion,  its  redundancy  only  made  that 
event  more  certain  and  severe. 

We  have  only  to  refer  to  the  facts  of  the  case,  to 
the  condition  of  the  national  banks,  to  discover  an 
adequate  cause  for  this  suspension,  and  the  mischiefs 
it  brought  upon  the  country.  From  official  returns 
made  only  one  week  before  the  great  catastrophe,  we 
find  that  the  national  banks  had  of — 


256  EXCHANGE. 

Loans  and  discounts .  $940,233,304 

Overdrafts 3,986,812 

United  States  bonds  . 411,960,250 

Other  stocks,  etc. 23,709,034 


$1,379,889,400 

The  actual  capital  of  these  banks  was,  at  that 
time, — 

Capital  stock  paid  up $491,072,616 

Surplus  fund 120,314,499 

Undivided  profits 54,515,131 

$665,902,246 

Deducting  this  last  amount  from  the  former,  we 
have  $713,987,154  as  the  pure  credit  or  explosive 
element  of  the  currency  at  that  time. 

The  following  will  show  the  ability  of  the  banks 
to  sustain  any  shock  they  might  be  called  to  en- 
counter. They  owed  for — 

Outstanding  notes $339,081,799 

Individual  deposits .     .     .  622,685,563 

United  States  deposits 7,829,327 

Deposited  by  United  States  officers 8,098,560 

$977,695,249 

Their  immediate  resources  were — 

Legal  tenders  (greenbacks) $92,347,663 

Specie 19,868,469 

United  States  certificates  of  deposit 20,610,000 

$132,826,132 

equal  to  13.6  per  cent,  upon  the  amount  liable  to 
be  called  for  on  instant  demand;  and  two-thirds  of 
their  indebtedness  consisted  of  what  they  owed  their 
depositors  that  was  unsecured,  and,  of  course,  liable 
and  certain  to  be  demanded  whenever  public  confi- 
dence became  at  all  impaired. 


NATIONAL   CURRENCY    OF     U  S.  257 

Such  was  the  aggregate,  actual  strength  of  the 
national  banking  system  as  a  whole;  but  its  most 
alarming  and  dangerous  element  consisted  in  the 
relation  of  the  redemption  to  the  non-redemption 
banks.  Of  these  latter  there  were  1747,  whose 
immediate  liabilities  were  $532,971,917,  while  their 
specie  and  legal  tenders,  their  means  of  payment, 
were  but  $46,601,414,  equal  to  but  8.7  per  cent. 
For  the  balance,  91.3  per  cent.,  they  were  depend- 
ent upon  the  redemption  banks,  who  themselves  owed 
$474,731,060,  while  all  their  immediate  resources 
were  but  $86,399,716. 

When  the  banks  suspended,  on  the  10th  of  Sep- 
tember, 1873,  the  people  throughout  the  nation  were 
almost  entirely  deprived  of  the  means  of  making 
exchanges ;  for  as  the  banks  would  neither  issue  or 
redeem  their  own  notes,  and  the  greenbacks  were 
hoarded,  resort  was  had,  of  necessity,  to  contrivances 
of  all  sorts  for  getting  on  with  ordinary  business 
transactions.  Such  distress  and  embarrassment  were 
never  known  before.  Issues  were  made  by  private 
individuals  and  corporations  of  their  own  notes, 
certificates  of  deposit  by  banks  and  by  the  clearing 
houses,  and  these  by  the  force  of  circumstances  were 
accepted  as  currency,  and  aided  in  relieving  the  gen- 
eral distress.  The  amount  of  these  issues  th  rough - 
out  the  nation  was  roughly  estimated  at  $100,000,000, 
and  might  have  been  twice  that  amount. 

CONDITION    OP    THE    CURRENCY   IN    1875. 

Very  important  changes  have  been  made  in  the 
currency  by  the  action  of  Congress  during  the  month 
of  January  of  the  present  year. 

22* 


258  EXCHANGE. 

First,  all  restrictions  limiting  the  aggregate 
amount  of  circulating  notes  have  been  removed, 
both  in  regard  to  existing  banks  and  all  that  may 
be  hereafter  formed. 

Free  banking  is  thus  established  without  any 
limitations  as  to  the  amount  of  notes  that  may  be 
issued.  This  secures  unlimited  expansion  so  far  as 
legal  provisions  are  concerned.  As  all  past  experi- 
ence shows  that  the  larger  the  issues  of  the  banks 
the  more  prices  are  raised,  speculation  engendered, 
and  the  demand  for  money  intensified,  it  is  suffi- 
ciently certain  that,  sooner  or  later,  the  circulation 
will  be  extended  far  beyond  what  it  is  at  present. 
It  can,  in  fact,  be  limited  only  by  the  amount  of  na- 
tional bonds,  that  must  be  deposited  in  the  national 
treasury  as  security  for  ultimate  redemption. 

Another  alteration  is  that  by  which  the  Secretary 
cf  the  Treasury  is  directed  to  call  in  82  millions  of 
the  greenbacks  (treasury  notes),  and  issue  in  lieu 
thereof  102  millions  of  additional  circulation  to  the 
hanks  as  fast  as  they  shall  ask  for  the  same. 

Another  provision  is,  that  "  on  and  after  the  first 
of  January,  1879,  the  Treasurer  shall  redeem  in  coin 
the  United  States  legal  tender  notes  outstanding, 
and  for  this  purpose  may  use  any  surplus  revenue 
in  the  treasury,  or  may  issue  such  United  States 
bonds  as  have  heretofore  been  authorized,  to  the  . 
extent  necessary  for  the  purpose." 

From  present  appearances,  there  can  be  no  such 
surplus  in  the  treasury,  and  the  issue  of  bonds  to 
redeem  the  balance,  if  the  redemption  of  the  notes 
were  really  desired,  might  as  well  be  made  now  as 
four  years  hence. 


NATIONAL   CURRENCY   OF    U.  S.  '259 


CLEARING   HOUSE    CERTIFICATES. 

This  brings  us  to  the  consideration  of  a  very  im- 
portant part  of  the  machinery  of  banking;  viz.,  Clear- 
ing House  Certificates.  These  are  created  each  day 
by  the  checks  drawn  upon  the  different  banks,  which 
are  all  brought  to  the  clearing  house  to  be  adjusted. 
In  the  last  return  these  "  exchanges"  amounted,  the 
8th  of  October,  1870,  in  New  York  City,  to  the 
enormous  sum  of  62  millions. 

Were  all  these  checks  drawn  in  good  faith  upon 
funds  actually  in  bank  it  would  make  no  difference 
how  large  the  amount;  but  if  drawn  without  funds, 
as  it  is  believed  a  large  part  are,  and  certified  by 
cashiers  to  be  "good,"  when  it  is  well  known  they 
are  not,  it  does  make  a  great  and  dangerous  differ- 
ence. A  law  of  Congress  exists  against  certifying 
checks  when  there  are  no  funds  as  a  basis  for  them; 
but  "operators"  care  little  for  laws  which  they  have 
ingenuity  enough  to  evade. 

Such  are  the  most  important  facts  in  regard  to 
the  banks  of  the  City  of  New  York  as  a  whole,  upon 
which,  as  we  have  said,  the  entire  superstructure  of 
the  National  Banking  System  rests.  But  there  are 
still  others  worthy  of  consideration  if  we  could  have 
a  complete  view  of  the  case.  Individual  banks  loan 
far  more  than  the  general  average.  For  example, 
one  of  the  city  banks,  with  a  gross  capital  of  $590,000, 
has  loaned  to  individuals  and  the  government, includ- 
ing $300,000  in  three  per  cent,  certificates,  $2,241,000, 
or  nearly  four  dollars  to  one  of  its  capital.  Its  legal 
tenders  were  $144,000,  its  specie  $13,000. 

Another  bank  presents  the  following: 


260  EXCHANGE. 

Loans $8,424,r09 

United  States  Bonds 536,000 

Other  stocks  and  mortgages 333,000 

Three  per  cent,  certificates 1,850,000 


Total  drawing  interest $11,143,909 

Its  capital  is $1,500,000 

Surplus  fund 298,633 

Undivided  profits 655,636 

2,454,209 


Excess $8,689,640 

This  last  sura  represents  the  extent  to  which  this 
bank  loans  its  credit,  and  accounts  for  its  heavy 
surplus  and  large  amount  of  undivided  profits,  in 
addition  to  the  large  semi-annual  dividends  it  has 
made.  Its  indebtedness  to  individual  depositors  was 
$4,024,843,  and  to  the  country  banks  $5,678,673. 

We  add  the  following  statement,  showing  very 
nearly  the  condition  of  the  entire  currency  of  the 
country  in  1860  and  1870 : 

In  1860,  circulation  and  deposits $460,000,000 

Fractional  circulation .     .     .       30,000,000 


Total  currency $490,000,000 

Hank  circulation  and  deposits  in  1870 809,000,000 

Greenbacks,  treasury  notes          356,000,000 

Gold  notes        40,000,000 

Three  per  cent,  certificates,  about 40,000,000 

Fractional,  about ' 4 .(,000,000 

Total  bank  and  government  currency      ....     $1.285,000,000 

If  a  population  of  31,500,000  in  1860  required 
490  millions  of  currency,  how  much  would  a  popu- 
lation of  38,500,000  require  in  1870?  Answer, 
$598,888,888,  say  600  millions,  instead  of  which  we 
have  1285  millions,  or  a  redundancy  of  685  millions. 


NATIONAL    CURRENCY   OF    U.  S.  2G1 

We  say  redundancy,  because  no  good  reason  can  be 
given  why  more  currency  in  proportion  to  popula- 
tion should  be  required  now  than  ten  }Tears  ago ; 
indeed,  the  increase  of  rapid  intercommunication, 
and  the  improved  methods  of  using  and  transmitting 
funds,  make  a  less  amount  now  as  effective  as  a  larger 
one  could  have  been  before  the  late  war. 

It  has  been  said  that  "this  excess  will  soon  be 
absorbed  by  the  growing  wants  of  trade."  That  the 
country  might  "grow  to  it"  ultimately,  if  it  con- 
tinued to  advance  in  wealth,  is  certain ;  but  the 
period  is  far  distant.  In  1835,  the  whole  circulation 
was  103  millions;  in  1860,  it  was,  as  we  have  seen, 
207  millions,  having  increased  at  the  rate  of  4-36 
per  cent,  per  annum  during  the  intervening  25 
years.  Should  the  demand  continue  to  increase 
in  the  same  ratio,  it  would  require  the  lapse  of  40 
years  from  1860,  or  until  the  year  1900,  to  bring 
the  wants  of  the  country  up  to  the  present  supply. 
In  the  mean  time,  the  currency  would  remain  not 
only  an  inconvertible  one,  but,  for  all  practical  pur- 
poses, irredeemable,  even  in  greenbacks;  because, 
although  strong  efforts  have  been  made  by  the 
Controller  to  secure  a  system  of  redemption,  op- 
posing influences  have  hitherto  been  sufficiently 
powerful  to  prevent  it;  the  banks  issue  their  notes 
without  any  fear  of  being  called  upon  to  redeem 
them;  and,  besides,  additional  issues  have  already 
been  authorized  to  the  amount  of  54  millions. 

Facts  of  this  kind  to  almost  any  extent  might  be 
presented ;  but  the  foregoing  are  believed  to  be 
sufficient  to  show  the  character  of  the  national 
bank  currency,  and  what  may  be  expected  from  it. 


262  EXCHANGE. 

The  only  complacency  we  can  feel  in  the  present 
system,  as  compared  with  the  past,  is,  that  it  is 
more  susceptible  of  reform,  and  of  being  restricted, 
by  national  legislation,  to  legitimate  banking. 


CHAPTER    XV. 

EVIDENCES    OF    DEBT. 

have  already  spoken  of  two  different  modes 
of  effecting  exchanges;  viz.,  (1)  barter,  and  (2)  a 
universal  equivalent,  money  or  currency.  We  now 
notice  a  third  mode  of  doing  this;  viz.,  by  EVI- 
DENCES OF  DEBT. 

These  are  mainly  of  three  kinds: 

I.  Book  accounts.  A  sells  B  one  hundred  barrels 
of  flour,  and  charges  him  five  hundred  dollars  in 
account,  to  be  paid,  by  verbal  agreement,  in  four 
months. 

This  is  a  very  extensive  mode  of  effecting  ex- 
changes. Very  large  transactions  are  made  in  this 
manner.  Retail  trade,  especially,  is  almost  wholly 
carried  on  in  this  way.  These  accounts  are  often, 
particularly  in  country  trade,  paid  in  commodities. 
The  farmer  makes  his  purchases  of  the  merchant, 
from  time  to  time,  and  sells  him  his  produce  when 
ready  for  market.  Both  are  entered  in  account, 
and  a  final  balance  is  ascertained,  and  adjusted  by 
money  or  other  equivalent. 

(a)  Book  accounts  are,  in  some  respects,  an  un 


EVIDENCES    OF    DEBT.  263 

desirable  form  of  transfer,  because  they  are  ex  parte, 
and  may  be  disputed.  The  purchaser  may  deny 
that  he  bought  such  a  quantity,  or  at  such  a  price. 
An  account,  if  disputed,  is  always  a  matter  to  be 
proved ;  and,  although  the  oath  of  the  seller  is 
generally  deemed  conclusive  evidence,  there  is 
always  opportunity  for  litigation. 

(b)  Another  objection  to  book  accounts  is,  that 
they  are  not  negotiable.  C  cannot  readily  purchase 
B's  account  against  A;  but,  if  B  had  A's  note,  that 
could  be  easily  negotiated  or  transferred.  Accounts 
cannot,  of  course,  be  made  available  at  banks,  like 
notes,  or  left  as  security  for  money  borrowed.  The 
capital  is  locked  up  for  the  time  being. 

II.  The   next  mode  of  credit   is  that  of  notes. 
These  are  made  payable  for  a  given  sum,  and  at  a 
given   date.      They  are   generally   payable   to   the 
order  of  the  payee,  and,  when  negotiated,  are  in- 
dorsed by  the  latter.     This  transfeis  fiie  ownership 
to  a  third  person ;  but  the  indorse!-  is  held  to  pay 
the  note,  if  the  promisor  fails  to  do  so. 

III.  A  third  form   is   by  bills   of  exchange,  or 
orders  from  A  to  B  to  pay  C  a  given  sum  at  a  fixed 
time.     These  differ  from  notes,  in  that  they  involve 
three  parties, — the  drawer,  the  acceptor,  and  the 
payee.     They  have  a  form  usually  somewhat  like 
the  following : 

$1000  NEW  YORK,  Jan.  1,  1866. 

Four  months  from  date,  pay  to  the  order  of  J.  Brentwood  &  Co. 
cue  thousand  dollars,  value  received,  and  place  to  account. 

(Signed)  HENDERSON,  WILLIAMS  &  Co. 

To  Messrs.  BENNET  BROTHERS  &  Co.,  Boston. 


264.  EXCHANGE. 

Here  are  three  parties, — the  drawer,  the  acceptor, 
and  the  indorser  or  payee. 

This  is  first  called  a  draft.  When  presented  to 
the  person  on  whom  it  is  drawn,  and  by  him  ac- 
cepted (which  is  done  by  writing  the  word  "ac- 
cepted" on  the  face,  and  signing  the  name),  it  is  an 
acceptance.  When  indorsed  by  the  person  in  whose 
favor  it  is  drawn,  it  becomes  a  complete  bill  of  ex- 
change. 

This  species  of  transaction  will  arise  mainly  be- 
tween persons  residing  in  different  places,  and  in 
this  manner:  A,  in  Boston,  orders  of  B,  in  New 
Orleans,  one  thousand  bales  of  cotton,  which  B 
sends,  with  a  bill  of  the  same,  and  then  draws  on  A 
for  the  amount. 

The  commerce  of  the  world  is  carried  on  prin- 
cipally by  this  agency.  The  transportation  of  money 
is  thus  dispensed  with,  except  to  settle  the  final 
balance  of  trade. 


BILLS    OF    EXCHANGE. 

Bills  of  exchange  may  be  divided  into  two  kinds, 
— domestic  and  foreign. 

Domestic  bills  are  those  drawn  and  payable  within 
the  same  country,  as  between  different  cities  and 
different  States.  The  manner  in  which  these  bills 
save  the  use  of  money,  in  domestic  trade,  is  illus- 
trated as  follows : 

A,  in  Boston,  sells  to  B,  in  New  York,  goods  to 
amount  of  one  thousand  dollars. 

C,  in  New  York,  sells  to  D,  in  Boston,  leather  to 
amount  of  one  thousand  dollars. 


EVIDENCES    OF    DEBT.  265 

Instead  of  sending  the  money,  B,  in  New  York, 
goes  to  C,  in  New  York,  and  gets  his  draft  on  D, 
and  remits  it  to  A,  in  Boston,  who  receives  the 
money  of  D ;  and  the  transactions  are  all  closed 
without  a  dollar  in  money  having  been  transferred 
from  one  city  to  another. 

This  is  the  course  of  all  direct  trade  between  any 
two  places.  Not,  it  must  be  understood,  that,  in  the 
case  supposed,  B  actually  goes  to  C ;  but  the  mer- 
chants in  Boston  are  owing  millions  to  merchants  in 
New  York,  while  persons  of  the  latter  place  are 
owing,  it  may  be,  an  equal  amount  in  Boston. 

Bills  are  drawn  on  Boston  for  all  due  to  New 
York,  and  on  New  York  for  all  due  to  Boston. 
These  bills  are,  when  completed,  if  not  before,  gen- 
erally passed  into  the  banks,  which  pay  out  the  money 
for  them,  deducting  the  interest  (and  exchange,  if 
there  is  any).  Then,  if  a  merchant  in  either  city 
wishes  to  remit,  he  goes  directly  to  the  bank,  which 
will  draw  on  some  bank  in  New  York  or  Boston,  as 
the  case  may  be,  for  such  sum  as  he  may  want.  The 
banks  negotiate  or  collect  th'e  whole,  and  sell  or  dis- 
pose of  their  own  checks  or  drafts  for  the  amount. 

This  is  a  labor-saving  arrangement  of  immense 
importance,  greatly  reducing  the  otherwise  inevi- 
table demand  for  a  large  amount  of  money  to  be 
kept  in  transitu  between  the  different  marts  of  trade. 


INDIRECT    EXCHANGE. 


But  all  exchange  is  not  direct  between  two  places. 

A,  for  example,  in  St.  Louis,  ships  one  hundred 

thousand  dollars'  worth  of  lead  to  New  York.     He 

23 


266  EXCHANGE. 

wishes  to  pay  sundry  persons  in  Boston,  Providence, 
Lowell,  and  Lynn.  He  draws  on  his  correspondent 
in  New  York  for  all  these,  in  favor  of  the  persons  to 
whom  he  is  indebted  ;  and  the  drafts  are  negotiated 
by  the  receivers,  through  bank  in  the  several  cities, 
and  finally  all  sent  to  New  York  for  collection.  All 
domestic  trade  thus  becomes  a  great  web  of  ex- 
changes, which  adjust  themselves  by  means  of  these 
bills;  and  thus,  to  their  entire  aggregate  amount, 
obviate  the  necessity  of  transmitting  money. 


FOREIGN    EXCHANGE. 

This  consists  of  orders  ;  that  is,  bills  of  exchange, 
drawn  upon  each  other  by  the  merchants  and  bankers 
of  different  countries.  They  differ  little  in  form 
from  domestic  bills,  but  are  usually  drawn  in  sets  of 
three ;  called,  respectively,  the  first,  second,  and 
third  of  exchange,  in  something  like  the  following 
form : 

£1000.  BOSTON,  June  28,  1859. 

At  sixty  days'  sight  of  this  first  of  exchange  (second  and  third 
unpaid),  pay  to  the  order  of  A.  Brown  &  Co.  one  thousand  pounds 
sterling,  value  received,  which  place  to  account. 

BRYDONE  BUOTHERS  &  Co. 
GEORGE  PEABODY  &  Co  , 
London. 

The  party  to  whom  the  bill  is  payable  takes  these, 
and  forwards  the  first  to  London,  where  it  is  accepted 
and  paid.  But  an  accident  might  occur  b\  \\hich 
the  bill  would  be  destroyed  or  lost  while  on  it**  way 
to  London ;  and,  in  that  case,  the  owner  woui<*  lor 


EVIDENCES    OF    DEBT.  267 

ward  the  second,  which  would  be  paid.  The  third 
bill  is  also  held,  for  the  same  precautionary  reasons. 

These  bills  arise  in  a  great  variety  of  ways. 
Persons  wishing  to  purchase  merchandise  or  other 
articles  abroad  go  directly  to  bankers  in  New  York, 
Boston,  etc.,  and  buy  a  bill  of  the  required  amount. 
So  with  persons  wishing  to  travel  abroad.  But  the 
principal  amount,  of  course,  is  drawn  in  payment 
for  importations  of  foreign  merchandise.  In  general, 
the  trade  between  England  and  this  country  is  car- 
ried on  by  bills  drawn  on  this  side  the  water,  upon 
cotton  and  other  produce  shipped  abroad,  mostly 
to  Liverpool. 

To  illustrate  the  ramifications  of  this  kind  of  in- 
tercourse, we  will  suppose  that  A,  in  Boston,  buys 
merchandise  of  B,  in  Liverpool;  C,  in  Boston,  sells 
goods  to  D,  in  New  Orleans;  E,  in  Boston,  buys 
cotton  of  F,  in  New  Orleans,  and  ships  the  same  to 
G,  in  Liverpool.  Each  transaction,  we  will  suppose, 
amounts  to  five  thousand  dollars. 

How  are  all  these  settled  without  the  transfer  of 
money  ?  A  gets  the  draft  of  E  upon  G,  and  sends 
it  to  B,  in  Liverpool ;  E  gets  the  draft  of  C  upon  D, 
and  remits  it  to  F,  at  New  Orleans,  who  receives  the 
amount  of  D.* 

Thus  four  debts  of  five  thousand  dollars,  in  all 
twenty  thousand  dollars,  have  been  paid,  and  no 
money  has  been  transferred  from  one  place  to 
another.  A  great  saving  of  time,  expense,  and 
interest  is  thus  effected. 


*  These  transactions  go  through  banking  houses,  as  in  the  case 
nf  domestic  exchanges. 


268  EXCHANGE. 

In  1857,  the  United  States  imported $362,000,000 

And  exported  cotton,  breadstuffs,  etc.,  $291,000,000; 
gold,  $69,000,000 360,000,000 

Leaving  a  nominal  balance  of $2,000,000 

Another  thing  in  regard  to  exchange  may  be 
noticed ;  viz.,  England  received  that  year  of  (the 
United  States)  fifty -four  millions  more  than  we 
bought  of  her.  The  same  year  we  bought  of 

Brazil  more  than  sold  to  her $16,000.000 

China 4,000^000 

Spain,  Cuba,  etc 29,000,000 

France 8,000,000 


$57,000,000 

These  balances  were  mainly  adjusted  by  drafts  on 
England,  by  which  our  balances  against  England 
were  discharged. 


THE  NATURAL  RATE  OF  EXCHANGE. 

By  the  rate  of  exchange  is  meant  merely  the  price 
or  cost  of  transporting  money  from  one  point  to 
another ;  say,  from  Cincinnati  to  New  York.  If  the 
time,  freight,  insurance,  and  other  charges  are  equal 
to  one  per  cent.,  then  that  is  the  natural  rate  of  ex- 
change. We  have  shown  that  only  a  small  amount 
of  coin,  in  the  course  of  trade,  is  likely  to  be  trans- 
ported from  one  place  to  another.  As  there  is  a 
mutual  trade,  as  Cincinnati  buys  of  New  York  and 
ISTew  York  of  Cincinnati,  it  is  only  necessary  to  buv 
bills  of  exchange  between  these  places.  But  on 
these  bills  there  will  be  a  premium  or  discount,  as 


EVIDENCES   OF   DEBT.  269 

the  case  may  be.  If  New  York  has  purchased  more 
largely  in  the  mutual  trade,  there  will  be  an  excess 
of  demand  in  that  city  for  bills  on  Cincinnati.  Re- 
verse the  supposition,  and  there  will  be  an  excess 
of  demand  in  Cincinnati  for  bills ^on  New  York. 
The  consequence,  in  either  case,  will  be  a  rate  of 
exchange  equal  to  the  transportation  of  specie,  as 
above  indicated.  The  rate  of  exchange  will  fluctuate 
from  time  to  time  (other  things  equal)  precisely  ac^ 
cording  to  the  transactions  between  the  two  cities. 
It  becomes,  then,  in  point  of  fact,  the  barometer  of 
trade ;  indicating,  with  perfect  accuracy,  the  state 
of  trade  between  any  two  points,  at  home  or  abroad. 
With  a  sound  currency,  the  rate  of  exchange  may 
ever  be  relied  upon,  and  is  always  watched  with 
great  interest  by  every  intelligent  merchant  and 
banker. 

If  this  be  so,  we  see  that  perfect  freedom  of  ex- 
change is  of  great  importance,  and  that  no  extraneous 
influence  should  be  brought  to  disturb  this  barom- 
eter, to  which  all  ought  to  look  with  entire  con- 
fidence. 

THE   RATE    OP   BRITISH    EXCHANGE. 

It  is  well  known  that  the  ordinary  rate  of  ex- 
change between  this  country  and  England  is  from 
nine  to  ten  and  a  half  per  cent,  against  the  United 
States;  but  the  explanation  of  this  is  not  generally 
understood.  The  transportation  of  specie  between 
the  two  countries,  all  charges  and  time  included, 
costs  only  about  one  and  one-quarter  per  cent. 
Why,  then,  this  difference? 

23* 


270  EXCHANGE. 

When  the  American  government  was  first  formed, 
the  old  Spanish  milled  dollar  was  in  use;  and  $4.44 
were  equal  to  the  British  gold  coin  called  a  sovereign, 
or  pound  sterling.  And  Congress^euacted  that  $4.44 
should  be  the  rate  at  which  the  pound  sterling  must 
be  computed  at  our  custom-houses. 

Since  that  time,  important  changes  have  taken 
place;  the  relative  value  of  gold  and  silver  have 
changed.  The  latter  has  advanced,  or  the  former  de- 
clined. The  American  dollar,  too,  has  been  altered, 
so  that  it  has  a  less  quantity  of  silver;  and  our  gold 
coins,  also,  proportionately.  It  therefore  now  takes 
$4.86.6,  in  American  coin,  to  be  equal  to  a  pound 
sterling.  Thus  the — 

Actual  value  of  the  pound  sterling  is $4.86.6 

Exchange  valuation 4.44.4 


Difference $0.42.2 

which,  it  will  be  seen,  is  equal  to  very  nearly  nine 
and  one-half  per  cent.;  so  that,  when  exchange  is 
quoted  at  nine  and  one-half  per  cent.,  it  is  really  at 
par. 

Uow,  if  this  is  the  actual  par  value  of  the  two  cur- 
rencies, it  will  happen  that,  whenever  the  market 
rate  of  exchange  rises  so  far  above  nine  and  one- 
half  per  cent,  as  to  be  sufficient  to  pay  the  expenses 
of  sending  specie  and  a  trifle  more,  then  the  specie 
will  go  forward. 

What  these  expenses  are  will  be  seen  by  a  state- 
ment of  an  actual  transaction  between  Boston  and 
London,  February,  1865. 


EVIDENCES    OF   DEBT.  271 

Gold  purchased $50,000 

Insurance,  one-half  per  cent $250.00 

Freight  to  Liverpool,  three -eighths  per  cent. 

Carriage,  Liverpool  to  London 

Selling,  commission,  one-eighth  per  cent        .     . 
Fourteen  days'  time  lost,  at  six  per  cent.  .     .     . 

$588.33 

These  expenses  are  equal  to  about  one  and  one- 
uxth  per  cent. 

There  is  always  some  risk  that  the  specie  sent 
forward  may  not  hold  out  full  weight;  that  is,  that, 
owing  to  abrasion  in  use, it  might  fall  short  a  trifle: 
so  that,  probably,  instead  of  one  and  one-sixth,  the 
exporter  of  gold  might  as  well  have  bought  a  bill 
of  exchange,  at  one  and  one-quarter  per  cent,  above 
9J,  the  actual  par. 

Then,  if  the  difference  in  the  par  value  of  the  two  curren- 
cies is  equal  to 9-5 

And  the  expenses  of  remitting  gold  equal  to 1-25 

Keal  par  value  of  exchange 10-75 

it  will  follow  that  gold  will  not  ordinarily  be  exported 
until  the  market  rate  of  exchange  is  about  ten  and 
one-half  per  cent. 


ARE    BILLS    OF    EXCHANGE    CURRENCY? 

It  has  often  been  maintained  that  bills  of  ex- 
change are  currency  as  truly  as  bank-notes.  Let  us 
inquire. 

1st.  The  definition  we  gave  of  currency,  viz.,  that 
instrumentality  by  which  a  general  exchange  of 
values  is  effected  and  payments  are  made,  does  not 


272  EXCHANGE. 

embrace  bills  of  exchange,  which  have  themselves 
to  be  discharged  with  currency.  The  fact  that, 
when  found  in  equal  amount  on  opposite  sides,  they 
may  be  used  to  cancel  each  other,  makes  them  no 
more  currency  than  is  the  credit  side  of  a  book 
account,  which  balances  the  debit.  Bills  of  exchange 
dispense  with  the  necessity  of  transporting  currency 
in  a  certain  number  of  commercial  transactions : 
they  are  not,  therefore,  themselves  currency.  They 
allow  debts  between  ditferent  States  or  nations  to 
be  discharged  in  the  local  currencies ;  but  each  bill 
is  itself  discharged  in  full  by  the  use  of  currency, 
no  less. 

2d.  Currency,  if  it  be  equal  to  money,  can  be  at 
once  exchanged  for  specie  at  the  place  where  issued; 
but  cash  cannot  be  demanded  for  bills  of  exchange, 
as  they  are  generally  on  time.  They  are,  in  fact, 
bought  and  sold  for  money,  like  the  merchandise 
on  which  they  are  drawn. 

3d.  If  a  bill  of  exchange  be  dishonored,  that  is, 
not  paid  according  to  promise,  the  currency  of  the 
country  is  not  thereby  diminished.  Is  it  so  with 
currency?  On  the  contrary,  if  a  bank  fails,  so  much 
currency  as  it  has  in  circulation  is  at  once  abstracted 
from  the  community. 

But  how  is  it  with  bills  of  exchange  and  notes? 

Suppose  the  indebtedness  of  a  country  were  one 
hundred  millions,  and  its  currency  ten  millions: 
then,  if  fifty  millions  of  the  bills  of  exchange  and 
notes  of  hand  fail  to  be  paid,  there  still  remain  the 
ten  millions  of  currency  with  which  to  pay  the 
balance;  and  currency  is  twice  as  plentiful,  rela- 
tively to  indebtedness,  as  before. 


EVIDENCES   OF   DEBT.  273 

Suppose,  on  the  other  hand,  that  one-half  the  cur- 
rency fails,  while  the  whole  amount  of  bills  of  ex- 
change, etc.  remain  to  be  paid;  or,  to  go  further, 
suppose  the  entire  currency  to  fail :  then  how  can 
the  private  bills  be  paid  at  all? 

So  far  from  being  currency,  then,  they  are  the 
very  opposite  in  their  nature,  and  can  be  discharged 
only  by  the  use  of  currency. 


BOOK   IV. 


CHAPTER   I. 

DIVISIONS   OF   THE   SUBJECT. 

DISTRIBUTION  is  the  apportionment  of  wealth 
among  the  parties  producing  it.  Like  EXCHANGE 
it  arises  from  the  division  of  labor. 

We  have  seen  by  whom  all  wealth  is  produced, 
have  examined  the  instrumentalities  employed  in  its 
transfer  from  one  individual  or  people  to  another, 
and  have  contemplated  the  nature  and  extent  of 
that  great  system  of  trade  by  which  the  products 
of  the  world  are  made  to  minister  to  its  wants. 

We  have  observed  that  capital  and  labor  are 
united  in  production, — one  as  the  labor  of  the  past, 
the  other  as  the  labor  of  the  present;  and  that  the 
joint  product  is  divided  between  them.  We  now 
come  to  consider  the  laws  by  which  an  equal  and 
just  distribution  of  the  wealth  produced  shall  be 
secured  among  the  parties.  In  doing  this,  we  are 
obliged  to  discriminate  between  the  different  kinds 
of  labor  employed  and  the  various  forms  in  which 
capital  enters  into  production. 

Labor,  in  the  distribution  of  wealth,  falls  into 
three  general  classes: 
(274) 


DIVISIONS   OF   THE   SUBJECT.  275 

1st.  Physical  or  muscular  effort. 

2d.  Mental  effort  or  enterprise,  applied  to  the 
union  of  capital  and  labor. 

3d.  Subsidiary  labor,  or  professional  services, 
auxiliary  to  direct  efforts  in  production. 

The  reward  of  the  first  is  called  wages ;  that  of 
the  second,  profits;  of  the  third,  salaries,  fees,  etc., 
— but  another  name  for  wages. 

In  these  three  general  forms,  labor  receives  its 
reward.  It  is,  however,  to  be  observed  that,  though 
the  distinction  is  clear  between  the  wages  of  direct 
labor  and  the  compensation  paid  for  subsidiary  labor, 
— like  professional  services, — yet  the  laws  which 
govern  are  so  similar  as  to  render  separate  examina- 
tion unnecessary.  Both  are  controlled  by  the  pro- 
portion of  supply  and  demand. 

Capital  is  loaned  in  two  general  forms: 

1st.  When  invested  with  a  permanent  character 
and  having  a  fixed  place, — as  houses,  fields,  etc., — 
its  compensation  is  called  "rent." 

2d.  When  in  a  shape,  however  solid  and  tangible, 
which  is  not  intended  to  be  retained,  but  may  be 
altered  to  suit  the  business,  or  removed  for  con- 
venience of  location, — i.e.  where  not  the  identical 
product,  but  only  an  equivalent,  is  to  be  returned, — 
its  compensation  is  called  "interest." 

Production,  thus  far,  has  been  charged  with  wages 
(and  under  this  term  we  include  all  the  rewards  of 
auxiliary  labor,  salaries,  fees,  etc.),  profits,  interest, 
and  rent.  Between  these  parties  the  product  is  to 
be  divided.  This  division  is  made  by  natural  laws, 
which,  if  not  interfered  with  by  legal  enactments  or 
social  customs,  will  secure  to  each  its  rightful  share. 


276  DISTRIBUTION. 

But,  while  this  is  true,  another  party  enters  the 
field,  and  makes  a  peremptory  claim  to  a  portion 
of  the  wealth  which  the  joint  efforts  of  these  has 
produced.  That  party  is  government,  demanding  a 
revenue  for  its  maintenance,  to  which  all  must  and 
should  contribute.  This  is  done  in  the  general  form 
of  taxation. 

Distribution  is  now  complete, —  wages,  profits, 
interest,  rent,  and  taxation.  These  we  shall  ex- 
amine in  their  order. 


CHAPTEK  II. 

WAGES. 

SINCE  labor  and  capital  join  together  in  produc- 
tion, each  may  rightfully  claim,  and  in  the  nature 
of  things  must  receive,  a  share  of  whatever  is  pro- 
duced. 

The  share  whicn  labor  receives  is  called  "wages;" 
and  by  this  general  term  is  meant  that  compensation 
which  the  employer  pays  to  the  employed  for  his 
personal  services.  The  law  of  value  is  the  law  of 
wages.  Wages  confer  value,  and  are  measured  by 
it.  They  depend  essentially  on  the  conditions  of 
cost,  supply,  and  demand.  Competition  comes  in  to 
influence  their  rate,  as  it  does  the  price  of  all 
commodities. 

Wages  vary  greatly  in  different  countries,  and  in 
different  parts  of  the  same  country;  they  vary,  too, 


WAGES.  277 

in  all  the  employments  and  occupations  of  society. 
These  differences,  however,  are  neither  accidental 
nor  arbitrary,  but  depend  on  certain  laws  which  it  is 
our  purpose  to  point  out. 

The  joint  instrumentality  of  labor  and  capital 
being  necessary  to  the  production  of  wealth,  it  fol- 
lows that  the  interests  of  the  two  parties  are  closely 
connected ;  that  capital  is  as  dependent  on  labor  as 
labor  is  upon  capital. 

If  this  is  so,  the  probabilities  of  an  equitable  di- 
vision will  depend  on  the  freedom  with  which  both 
parties  are  able  to  act,  and  the  equality  on  which 
they  stand  when  the  contract  or  copartnership  is 
formed. 

Whatever,  in  social  arrangements  or  civil  institu- 
tions, destroys  the  natural  freedom  and  equality 
of  the  parties,  gives  one  an  advantage  over  the 
other;  and  the  party  having  the  advantage  will 
profit  by  it. 

Wherever,  by  class  legislation,  capital  is  allowed 
to  tyrannize  over  its  copartner,  or  concentrate  itself 
in  vast  aggregations,  and  thus  increase  its  natural 
power  over  labor,  which  cannot  be  thus  brought  into 
efficient  and  permanent  combination,  the  latter  will 
be  compelled,  in  one  form  or  another,  to  accept 
less  than  its  just  reward. 

But,  however  unjust  or  arbitrary  laws  or  institu- 
tions may  be,  it  is  evident  there  are  certain  limits 
beyond  which  the  wages  of  labor  cannot  be  re- 
duced. 

The  cost  of  labor  is  identical  with  the  cost  of 
maintaining  the  laborer  in  such  circumstances  that 
he  can  not  only  support  himself,  but  rear  a  family 

24 


278  DISTRIBUTION. 

of  children  sufficiently  numerous  at  least  to  keep 
the  supply  of  laborers  good. 

Hence  he  must  receive  what  has  been  properly 
denominated  necessary  wages ;  that  is,  to  use  in  part 
the  definition  of  Adam  Smith,  "such  wages  as  will 
enable  him  not  only  to  obtain  the  commodities 
absolute!}7  necessary  to  the  support  of  life,  but  what- 
ever else  the  customs  of  society  render  it  indecent 
for  persons  in  his  rank  in  life  to  be  without." 

There  being,  then,  no  uniform  and  established 
standard  of  wages,  they  vary  according  to  the  ex- 
penses of  subsistence  in  different  countries,  and  the 
condition  in  which  the  laboring  classes  are  willing 
to  live. 

The  cost  of  labor,  or  the  current  rate  of  wages 
that  can  permanently  exist,  depends  on  the  neces- 
sary expenses  of  living;  and  these  expenses,  in  turn, 
depend  upon  the  condition  of  the  laboring  classes. 
Hence,  other  things  equal,  the  more  educated  and 
morally  and  intellectually  elevated  any  community 
of  laborers  may  be,  the  higher  will  be  their  standard 
of  wages. 

Wages  are  not  high  in  proportion  to  the  wealth 
of  a  community,  but  rather  to  the  disposition  that 
exists  among  those  possessing  wealth  to  pay  it  out 
for  labor;  and  this  disposition  will  depend  much 
upon  the  security  and  profitableness  with  which  capi- 
tal can  be  employed  in  production,  and  the  enter- 
prise and  aspirations  of  the  people. 

We  make  the  following  divisions  of  our  subject: 


WAGES. 
NOMINAL   AND    REAL   WAGES. 

There  is  often  a  considerable  difference  between 
the  nominal  and  real  wages,  or  between  the  wages 
of  the  employe*  when  received  in  money  or  when 
realized  in  such  commodities  as  his  wants  require. 
As  this  is  a  question  of  fact,  we  refer  to  pages  191, 
192,  of  this  work,  as  shown  in  Table  Y.  In  that 
table  we  find  the  prices  of  ten  commodities,  which 
the  laborer  would  be  likely  to  use  in  his  ordinary 
consumption,  such  as  sugar,  coffee,  molasses,  pork, 
cheese,  rice,  salt,  etc. 

By  taking  the  wages  of  common  laborers  at  certain 
periods,  and  the  prices  at  corresponding  periods,  we 
ascertain  the  desired  results.  We  have  added  the 
year  1864  from  the  best  unofficial  sources  at  hand: 

1836.  1840.  1843.  1864. 

Wages $1.25  $1.00  $1.00  $1.75 

Commodities  .     .     .     .2946  20.73  1482  46.96 

Labor  required     .     .     .  23J  days  20|  days  14|  days  26f  days 

Nominal  wages  fell  from  1836  to  1840  by  one- 
fifth,  or  twenty  per  cent.;  yet  the  real  wages  (as 
shown  by  the  less  number  of  days  required  to  pro- 
cure the  same  commodities)  were  higher  in  1840 
than  1836  by  more  than  thirteen  per  cent.  In  1843, 
when  the  nominal  wages  were  but  one  dollar,  real 
wages  were  about  sixty  per  cent  belter  than  in  1836, 
when  the  nominal  wages  were  twenty-five  per  cent, 
higher.  In  1864,  when  nominal  wages  were  at  one 
dollar  and  seventy-five  cents,  real  wages  were  but 
little  more  than  half  what  they  were  in  1843  at  one 
dollar. 


280  DISTRIBUTION. 

CHAPTER   III. 

PROPORTIONATE   RISE   AND   FALL   OF  WAGES. 

ALTHOUGH  wages  rise  and  fall  with  the  general 
rise  and  fall  of  commodities,  they  do  not  in  equal 
proportion.  The  fact  is  one  of  common  observa- 
tion: but  the  reason  of  this  difference  we  do  not 
recollect  to  have  seen  stated  by  any  writer.  For 
nearly  all  products  there  is  both  an  actual  and 
speculative,  or  a  present  and  prospective,  demand: 
for  labor  there  is  only  an  actual,  present  demand. 
When  business  begins  to  be  particularly  prosperous, 
there  is  a  general  demand  for  all  kinds  of  merchan- 
dise, and  prices  gradually  begin  to  improve.  This 
at  once  occasions  a  speculative  demand;  for  to  buy 
will  be  to  realize  an  advance:  the  larger  the  pur- 
chases, the  greater  the  amount  of  profit.  Every 
operation  pays.  The  rise  continues  until  every 
article  bought  and  sold  as  merchandise  goes  up  to 
the  highest  point. 

But  no  one  speculates  in  wages.  No  one  can,  if 
he  would,  buy  a  hundred  thousand  dollars'  worth 
of  labor,  and  hold  it  for  an  advance,  as  he  can  of 
flour,  sugar,  or  tea.  Of  course,  labor  has  no  ad- 
vantage from  this  kind  of  demand,  but  must  rely 
entirely  on  that  which  is  immediate  and  actual. 
Therefore  it  is  that  a  general  rise  of  prices,  so  far 
as  occasioned  by  speculation,  must  always  operate 
against  the  laborer,  or  the  person  employed  on 
salary  or  wages. 


RISE   AND   FALL   OF   WAGES.  281 

Bat  wages  not  only  never  rise  so  much  as  com- 
modities, but  do  not  rise  so  soon.  The  reason  is, 
that  the  rise  of  commodities  is  greatly  accelerated 
by  speculation ;  while  labor,  as  before  stated,  is  not 
affected  by  that  kind  of  demand.  Hence  it  does  not 
begin  to  rise  until  speculation  has  engendered  a 
spirit  of  extravagance  and  increased  consumption ; 
then  wages  make  an  advance  about  half  as  great, 
on  an  average,  as  that  of  merchandise  in  general. 

And,  again,  wages  fall  sooner  than  merchandise, 
because  the  latter  may  be  held  for  high  prices,  if 
need  be.  The  fall  of  merchandise  is  broken  by  the 
disposition  and  ability  of  the  owner  to  hold  on,  and, 
as  far  as  possible,  prevent  loss ;  but  the  laborer  can- 
not do  this, — he  must  sell  his  commodity 'at  once 
for  the  most  it  will  bring. 

It  is  for  those  obvious  reasons  that  wages,  in  times 
of  depression,  must  fall,  not  only  sooner,  but  lower, 
than  property  in  general. 

A  real  rise  or  fall  in  wages  is  a  matter  difficult  to 
ascertain  with  certainty.  Fluctuations,  since  the 
introduction  of  mixed  currency,  have  been  frequent 
and  violent,  not  in  the  rate  of  wages  only,  but  of 
those  commodities  upon  which  the  laborer  subsists, 
and  in  which  his  real  wages  must  be  estimated.  To 
determine  whether  actual  value  wages  have  ad- 
vanced or  not  since  the  commencement  of  the 
present  century,  for  example,  we  must  have  the 
nominal  rates,  say  in  1810,  also  in  1860.  We  must 
then  take  the  prices  of  commodities  at  the  two 
periods;  and,  by  comparison,  we  may* arrive  at  a 
general  conclusion.  We  should  undoubtedly  be 
satisfied  that  there  has  been  a  decided  increase  in 

24* 


282  DISTRIBUTION. 

the  average  value  of  wages.  In  our  investigation, 
we  should  find  that  some  articles  were  higher  and 
some  lower  in  price  in  1860  than  fifty  years  before. 
For  example,  while  one  dollar  per  day  for  labor 
was  probably  as  high  wages  in  1810  as  one  dollar 
and  a  half  in  1860,  corn  was  worth  the  same  at  each 
end  of  the  half-century;  but  cotton  cloth,  which 
was  worth  forty  cents  a  yard  in  1810,  could  be 
bought  in  1860  for  ten  cents.  In  all  manufactured 
articles,  the  difference  is  against  the  earlier  labor; 
so  that  it  is  true  the  laborer  of  to-day  enjoys  many 
comforts  which  his  predecessors  could  not  obtain. 
The  wants  of  the  laborer  have  immensely  increased. 
It  would  be  impossible  to  give  an  inventory  of 
them ;  but,  could  we  compare  the  consumption  of 
laborers  in  1810  with  their  consumption  in  1860, 
we  should  find  the  advance  surprising.  The  amount 
they  expend  for  pleasure -travel,  for  example,  is 
now  very  large,  while  fifty  years  ago  it  was  hardly 
appreciable.  So  of  the  luxury  of  newspapers,  mag- 
azines, etc.  Some  part  of  the  expenditures  of  the 
poorer  classes  are  for  articles  (like  photographs) 
which  were  absolutely  unknown  a  generation  since. 
Workmen  may  be  less  satisfied  with  their  com- 
pensation now  than  fifty  years  ago;  but  it  is  really 
far  greater.  We  do  not  say  they  have  no  cause  for 
complaint,  yet  they  are  vastly  better  off  than  those 
who  went  before  them.  Wages,  when  realized  in 
commodities,  have  increased.  The  general  product 
has  been  enlarged  by  the  introduction  of  labor- 
saving  machinery,  and  therefore  their  absolute  share 
is  greater.  Whether  their  relative  share,  as  com- 


DIFFERENCE    IN   WAGES.  283 

pared  with  that  of  the  capitalist  or  employer,  is 
greater,  we  shall  find  place  elsewhere  to  discuss.* 

The  laborer  suffers  nothing,  but  gains  much,  in 
the  progress  of  civilization,  if  he  is  not  despoiled  by 
an  unsound  currency.  That  is  his  greatest  oppressor, 
because  his  real  wages — what  he  obtains  in  com- 
modities for  his  labor — is  determined  to  a  consider- 
able extent  by  the  character  of  the  circulating  me- 
dium of  the  country.  If  the  value  of  that,  or  its 
purchasing  power,  is  less  than  it  professes  to  be,  he 
cannot  fail  to  be  injured  by  it. 


UNHEALTHY    TRADES. 

Those  occupations  which,  although  not  immedi- 
ately dangerous,  are  nevertheless  unhealthy  and 
abridge  human  life,  ought  to  command  more  than 
ordinary  wages. 

If  a  man  is  liable  to  be  made  sick,  and  conse- 
quently exposed  to  loss  of  time  and  expense  for 
medical  attendance,  he  should  be  compensated  for 
that  liability.  If  he  shortens  life  in  a  particular 
employment,  that  should  be  a  matter  of  considera- 
tion in  determining  the  rate  of  wages. 

It  is  not  for  us  to  inquire  here  whether  a  man 
may  rightfully  engage  in  that  which  he  knows  will 
abridge  life ;  but  that  multitudes  do  so  is  beyond  a 

*  The  very  low  rate  of  "corn  wages"  received  b\r  the  English 
laborer  in  times  past  may  be  seen  from  the  statement  of  Mr. 
Malthus  (Pol.  Econ  ,  p  228,  Lond  ed.  1836),  that  wages  had 
advanced,  and  wheat  fallen,  so  much  "  that,  from  1720  to  1750, 
a  whole  peck  of  wheat  could  be  had  for  a  day's  labor." 


284  DISTRIBUTION. 

doubt.  Regarded  in  a  merely  economical  point  of 
view,  it  is  obvious  that,  on  this  account,  some 
laborers  should  receive  much  higher  compensation 
than  they  do  at  present. 

Agriculture  is  evidently  the  normal  employment 
of  man,  that  in  which  he  lives  longest  and  enjoys 
the  greatest  health.  Every  other  calling  is  un- 
wholesome to  the  exact  extent  in  which  it  departs  in 
its  condition  from  the  agricultural ;  and  the  rate  of 
wages  should  be  adjusted  to  a  scale  constructed  on 
this  principle. 

THE  EDUCATION  OF  THE  LABORER. 

Other  things  equal,  the  man  who  has  received 
merely  a  common-school  education  will  obtain 
higher  wages  in  any  employment  than  one  who 
is  entirely  illiterate.  He  has  some  mental  disci- 
pline, will  therefore  be  more  intelligent  and  capable, 
will  better  understand  and  recollect  the  directions 
of  his  employers,  better  comprehend  the  nature  of 
his  duties.  If  need  be,  he  can  keep  an  account  of 
what  he  does.  He  has  in  some  measure  learned  to 
think ;  he  will  have  a  higher  sense  of  self-respect, 
and  be  more  reliable. 

The  difference  in  favor  of  a  workman  who  is  so 
far  furnished  with  intelligence  that  he  can  do  his 
own  share  of  thinking,  instead  of  relying  entirely 
upon  his  employer  for  every  exercise  of  judgment 
and  forecast,  is  very  great  to  the  employer.  If  the 
latter  is  compelled  to  supply  all  the  head-work,  he 
must  be  in  constant  attendance,  and  exercise  the 
utmost  vigilance.  Five  stolid  workmen  will  cost 


FRUGALITY  OF  THE  LABORER.        285 

him  as  much  time  as  ten  intelligent  ones,  and  a 
great  deal  more  care,  vexation,  and  loss.  Hence 
intelligent  labor  is  worth  more,  and  will  bring  more. 

THE  FRUGALITY  OF  THE  LABORER. 

Another  important  consideration  in  connection 
with  this  part  of  our  subject  is,  that  the  educated 
laborer  will  be  more  likely  to  appreciate  his  true 
interests,  and  save  a  part  of  his  earnings.  Every 
dollar  he  saves  and  accumulates  in  the  shape  of 
property,  of  whatever  kind,  will  render  him  more 
independent;  and  the  more  independent  he  is,  the 
more  likely  he  will  be  to  get  fair  wages.  He  be- 
comes, to  a  certain  extent,  a  capitalist,  and  can 
measure  strength  with  capital  on  better  terms. 

The  man  who  has  nothing  upon  which  to  subsist 
to-day  must  work  to-day,  at  whatever  price,  or 
starve;  while  he  who  can  get  on  for  a  fortnight 
without  employment  may  choose  whether  he  will 
work  for  less  than  a  fair  price  to-day  or  not. 

This  is  a  matter  of  great  importance  to  the 
laborer;  for  the  natural  advantage  the  capitalist  has 
over  him  is,  that  the  latter  can  wait  a  little,  while 
the  former  must  work  NOW.  The  laborer  or.  em- 
ploye of  whatever  kind  (for  all  are  subject  to  the 
same  law)  should  strive  earnestly  to  make  himself 
as  independent  in  his  position  as  possible.  Hence  self- 
denial  and  economy,  when  exercised  by  those  who 
live  on  wages  or  salaries,  are  amply  repaid  by  better 
terms  of  service.  There  is  a  homely  adage,  "  that 
a  man  is  poorer  for  being  poor,"  which  laborers,  of 
all  others,  should  bear  in  mind. 


286  DISTRIBUTION. 


DISTINCTION    OF    SEX. 

"Women  receive  less  wages  than  men.  This  is 
doubtless  true  in  all  the  so-called  civilized  countries. 
The  difference  may  be  stated  at  about  fifty  per  cent, 
to  their  disadvantage;  that  is,  where  the  man  re- 
ceives one  dollar,  the  woman  receives  fifty  cents.* 
And  this,  too,  not  only  where  the  services  of  the 
two  sexes  differ,  but  where  they  are  identical,  as  in 
school-teaching,  type-setting,  etc.  Why  this  dis- 
parity ? 

Political  economists,  so  far  as  we  know,  have  not 
troubled  themselves  much  about  it.  Philanthropists 
have  taken  cognizance  of  the  fact,  and  have  sought 
to  apply  a  remedy,  but  generally,  we  may  say  uni- 
formly, with  little  success.  We  shall  not  go  at 
length  into  the  subject,  only  endeavor  to  state  the 
causes  from  which  we  suppose  the  difference  arises. 
These  may  suggest  the  remedy. 

The  first  consideration  to  be  noticed  is  the  fact 
that  the  two  sexes  exist  in  remarkably  equal  num- 
bers throughout  the  world.  There  are  as  many 
women  as  men. 

The  second,  that  while  almost  all  occupations  and 
employments  are  accessible  to  the  male  sex,  but 
comparatively  few  are,  by  the  opinions  and  customs 
of  society,  regarded  as  proper  for  women.  One, 
therefore,  has  the  whole  field  of  life  in  which  to  act; 
the  other  is  limited  to  a  part. 

*  The  average  monthly  wages  of  male  teachers  in  the  public 
schools  of  Massachusetts,  1857-8,  was  $49.87. 

The  average  monthly  wages  of  female  teachers  in  the  public 
schools  of  Massachusetts,  1857-8,  $19.63. 


WAGES    OF    FEMALES.  287 

On  the  principle,  then,  of  supply  and  demand,  the 
number  of  females  being  as  great  as  that  of  males, 
while  their  employments  are  so  much  fewer,  they 
must  of  necessity  work  for  less  reward.  The  supply 
is  greater  than  the  eft'ective  demand. 

A  third  fact  is,  that  the  part  of  labor  assigned  to 
women  is  of  a  more  dispensable  character.  A  great 
part  of  the  labor  of  women  is  connected  with  the 
comforts,  conveniences,  and  luxuries  of  life:  hence 
it  can  and  will  be  dispensed  with,  unless  it  can  be 
had  cheap.  The  staple  productions — corn,  cattle, 
iron,  cotton,  and  the  like — must  be  had,  at  whatever 
price  or  cost  of  labor;  but  not  so  with  the  thousand- 
and-one  little  articles  of  beauty,  taste,  and  fashion 
which  female  industry  creates  in  every  household. 
For  example:  suppose  a  farmer  employs  two  men  to 
carry  on  his  agricultural  labors,  and  usually  the  same 
number  of  females  in  the  work  of  the  house.  Now, 
if  he  should  be  so  pushed  for  means  as  to  be  obliged 
to  dispense  with  one  of  his  employe's,  which  would 
it  naturally  be,  one  of  his  hired  men  or  hired  ma:ds? 
Doubtless  one  of  the  latter ;  because  by  doing  so 
he  would  only  lose  some  of  the  conveniences  and 
comforts  of  life,  without,  perhaps,  much  sacrifice  of 
property ;  while  in  the  other  case  he  would  lose 
part  of  his  crop.  As  now  employed,  by  far  the 
greater  part  of  female  labor  creates  no  values,  no 
vendible  commodities. 

There  seems  to  be  a  prevalent  feeling  at  the 
present  day  that  the  wages  of  woman  ought  to  be 
increased;  that  her  position  ought  to  be  less  de- 
pendent. But  those  who  are  satisfied  with  the  ex- 
isting customs  and  opinions  of  society,  by  which  the 


288  DISTRIBUTION. 

sphere  of  woman  is  restricted  to  its  present  limits, 
ought  to  be  equally  well  satisfied  with  the  compen- 
sation allotted  her  ;  for  it  is  just  such  as  must  follow. 

'No  attempt  to  enhance  her  wages  by  legal  enact- 
ments or  appeals  to  human  sympathies  or  benevo- 
lent organizations  need  be  made;  for  there  is  a  law 
that  overrides  all  these, — the  law  of  supply  and  de- 
mand; a  law  founded  in  nature,  inexorable  and  im- 
mutable. An  increase  of  her  wages  can  result  only 
from  an  increase  of  her  employments, — of  employ- 
ments, too,  of  an  equally  indispensable  character  as 
those  of  the  other  sex. 

That  a  change  of  this  sort  is  fortunately  in  pro- 
gress in  most  civilized  countries,  and  especially  in 
the  United  States,  is  apparent.  The  introduction 
of  machinery  is  doing  much  to  equalize  the  wages 
of  the  two  sexes.  Water  and  steam  are  now  made 
to  accomplish  that  which  could  once  be  done  only 
by  human  strength,  leaving  the  residue  of  labor, 
which  is,  to  a  great  extent,  the  exercise  of  intel- 
ligence and  attention,  to  be  performed  by  persons 
of  either  sex.  Hence  there  is  now  a  great  demand 
for  the  labor  of  females  where  there  was  once  none 
at  all.  There  is  less  demand  for  muscle,  and  more 
for  mind:  this  brings  woman  nearer  an  equality 
with  man. 


A   NEW   CLASSIFICATION    OF   WAGES.  289 


A   NEW   CLASSIFICATION   OF   WAGES. 

There  have  now  been  presented  most  of  the  con- 
siderations we  have  room  to  offer  in  regard  to  the 
subject  before  us,  and  in  somewhat  the  usual  manner 
of  arrangement.  We  propose,  in  conclusion,  to  give 
what  may  be  a  new,  but,  as  we  think,  a  more  natural 
and  scientific  classification  of  wages. 

Properly  considered,  wages  are  paid  for  three  dif- 
ferent kinds  of  power  ;  viz.: 

1st.  PHYSICAL  POWER,  or  mere  muscular  effort 
with  the  spade,  shovel,  hoe,  and  the  like ;  the  kind 
of  labor  least  elevated  above  that  of  the  horse  or  ox. 
This  power  is  most  plenty,  comes  by  nature,  costs 
the  least,  and  is  therefore  cheapest. 

2d.  MENTAL  POWER, — those  faculties  of  mind  that 
give  ability  to  manage  complicated  affairs,  the  gen- 
eral operations  of  agriculture,  manufactures,  com- 
merce,— all  services,  in  fact,  that  require  the  exercise 
of  judgment,  discretion,  reflection,  calculation.  Such 
power  is  more  rare  than  physical  force.  It  will 
therefore  command  a  higher  price,  especially  in  a 
progressive  state  of  society.  To  this  class  may  be 
referred  all  persons  of  natural  ingenuity,  inventors, 
authors,  and  men  of  genius.  Such  often  receive 
great  rewards. 

To  prepare  men  for  the  exercise  of  their  intel- 
lectual powers,  a  considerable  amount  of  education 
and  training  is  necessary.  Hence  such  powers  are 
not  only  more  rare,  but  more  expensive,  than  brute 

25 


290  DISTRIBUTION. 

force,  and  therefore  rightfully  command  higher  com- 
pensation. 

3d.  MORAL  POWER.  As  man  advances  in  civiliza- 
tion,— as  wealth,  its  great  concomitant,  increases, 
and  social  combinations  are  multiplied, — it  becomes 
more  and  more  necessary  that  important  trusts 
should  devolve  on  individuals  occupying  particular 
stations.  With  all  the  checks  and  securities  that 
can  be  devised,  the  greatest  reliance  must  ever  be 
placed  on  the  character  of  the  person  to  whom  the 
trust  is  committed.  Oftentimes  the  honor  and  inter- 
ests of  vast  bodies  of  men  must  be  committed  to  a 
single  hand. 

Hence  arises  a  necessity  for  something  more  and 
higher  than  physical  and  mental  faculties  or  qualities 
combined, — something  that  shall  furnish  a  guaranty, 
irrespective  of  all  contrivances,  that  these  high 
trusts  shall  be  faithfully  discharged.  That  guar- 
anty is  found  in  the  moral  power  of  the  individual, — 
that  power  which  gives  such  a  control  over  appe- 
tites, passions,  and  propensities  as  affords  assurance 
that  under  no  circumstances  of  trial  or  temptation 
will  he  ever  depart  from  the  strict  line  of  duty. 

When  men  are  found  possessing  this  high  moral 
power  over  themselves  and  the  accidents  of  their 
position,  they  will,  of  course,  be  called  to  places  of 
high  responsibility  and  trust.  Now,  as  such  men 
are  more  rare  than  those  having  only  physical  power, 
or  physical  and  mental  power  combined,  they  will 
command  higher  rewards, — the  highest  paid  for 
any  class  of  services. 


LABOR   COMBINATIONS.  291 


CHAPTER  IV. 

LABOR     COMBINATIONS. 

IN  connection  with  the  subject  of  wages,  it  seems 
necessary  to  inquire  somewhat  in  regard  to  the 
rights  of  the  laborer,  since  upon  these  his  compen- 
sation must  to  some  extent  depend. 

Under  a  government  acknowledging  the  rights 
of  all  men,  the  laborer  must,  of  course,  have  the 
same  rights  as  his  fellow-citizens,  neither  more  nor 
less.  He  asks  no  favor,  and  grants  none.  He  de- 
mands the  same  justice,  the  same  freedom,  accorded 
to  others.  He  should  be  able,  so  far  as  law  is  con- 
cerned, to  work  when  and  for  whom  he  chooses, 
and  for  such  consideration  as  he  can  get  in  the  great 
competition  of  industry.  The  law  cannot  say  how 
much  he  shall  accept  for  wages,  how  many  hours 
shall  constitute  a  day's  work,  nor  how  much  the 
employer  shall  give  him.  Each  is  left  perfectly 
free,  and  the  competition  is  simply  between  labor 
and  capital. 

But  the  laborer  is  not  under  obligation  to  act  as 
an  insulated  individual,  any  more  than  the  capitalist. 
If  the  latter  is  permitted,  and  even  authorized  and 
encouraged,  to  combine  with  his  fellows  in  order  to 
enhance  the  power  and  profits  of  capital,  it  is  equally 
the  right  of  the  laborer  to  do  the  same,  and  equally 


292  DISTRIBUTION. 

the  duty  of  the  legislator  to  give  him  any  facilities 
for  doing  this  he  may  justly  demand. 

If  capital  is  incorporated,  labor  should  have  the 
same  privilege.  If  favors  in  any  case  are  awarded 
to  one  party,  they  should  certainly  be  furnished  to 
the  other. 

Laborers,  then,  may  combine,  if  they  deem  it  best 
to  act  in  concert  in  regard  to  their  interests. 

As  a  matter  of  fact,  they  do  form  associations  for 
mutual  benefit.  In  England,  these  "friendly  so- 
cieties," as  they  are  called,  are  numerous,  and  often 
exert  a  very  happy  influence.  They  are  formed  for 
a  great  variety  of  specified  objects. 

Some  of  these  are  merely  charitable, — for  assist- 
ing members  when  searching  for  employment, — for 
relieving  them  in  case  of  disability  from  sickness, 
and  for  similar  purposes. 

Others  are  for  the  diffusion  of  intelligence,  like 
lyceums,  mechanics'  institutes,  etc.,  or  for  moral  and 
social  elevation  and  improvement,  as  associations  to 
discourage  the  use  of  intoxicating  drinks,  and  other 
pernicious  and  degrading  habits.  Such  societies 
have  been  found  highly  advantageous,  especially  in 
Great  Britain. 


TRADES     UNIONS. 

One  of  the  forms  in  which  these  associations  make 
their  appearance  is  that  of  trades'  unions.  The 
principal  object  of  these,  generally,  is  the  increase 
of  wages.  The  different  trades  often  combine  for 
this  purpose,  and  endeavor  to  fix  the  rate  at  which 
they  will  work.  This,  it  would  seem,  they  have  an 


LABOR   COMBINATIONS.  293 

undoubted  right  to  do:  whether  it  be  good  policy  is 
another  question. 

Men  may  mutually  agree,  for  example,  that  they 
will  work  only  ten  hours  per  day,  and  will  have  two 
dollars  per  day  as  wages.  All  who  voluntarily  join 
such  an  agreement  are  in  honor  bound  to  keep  it; 
and,  if  the  association  binds  itself  to  support  those 
who  are  turned  out  of  employment,  it  has  also  the 
undoubted  right  so  to  do. 

But,  while  all  this  is  conceded,  it  does  not  follow 
that  if  a  member  violates  the  rules  of  the  society, 
his  associates  may  inflict  any  punishment  upon  him 
for  doing  so,  except  such  as  the  law  of  the  land 
authorizes.  A  trade's  union  is  not  an  imperium  in 
imperio.  It  has  all  the  rights  which  each  individual 
member  has,  and  no  more.  Hence  any  attempt  to 
inflict  punishment  upon  such  delinquent  is  as  much 
an  infringement  of  his  rights,  and  of  the  laws  of  the 
country,  as  if  it  were  done  by  an  individual. 

Again:  nor  has  a  trade's  union  any  right  what- 
ever, moral  or  legal,  to  interfere  in  any  manner 
with  those  of  their  craft  who  do  not  choose  to  enter 
into  their  association.  If  such  persons  prefer  to 
work  at  a  less  rate  of  wages  than  that  established 
in  the  tariff  of  the  union  rather  than  not  work  at  all, 
they  have  the  most  unquestionable  right  to  do  so; 
and  any  attempt  to  prevent  them  by  brute  force  is 
an  infringement  of  personal  rights  which  govern- 
ment is  bound  to  resist  to  the  utmost.  Such  an  act 
is  merely  the  act  of  a  mob,  and  has  no  justification.* 
-Nay,  more:  under  a  free  government,  where  these 
very  men  who  have  thus  combined  are  citizens, 
with  the  right  of  suffrage,  and,  in  common  with 

25* 


294  DISTRIBUTION. 

others,  elect  those  who  enact  the  laws  under  which 
they  live,  any  outrage  of  this  kind  is  an  overt  act 
of  moral  treason  against  republican  institutions.  It 
is  a  virtual  declaration  that  these  institutions  have 
failed  and  must  fail  to  give  adequate  protection,  and 
therefore  these  aggrieved  parties  are  obliged  to  re- 
sort to  violence;  in  other  words,  to  override  the 
government,  the  Constitution,  and  the  laws. 

STRIKES. 

The  foregoing  argument  covers  the  whole  ground 
of  right  or  wrong  in  regard  to  strikes. 

Members  of  a  trade's  union,  believing  that  their 
wages  are  inadequate  or  less  than  their  employers 
can  well  afford,  by  mutual  agreement  strike  for 
higher  wages.  If  not  granted,  they  turn  out.  To 
produce  effect,  and  aid  in  obtaining  what  they  de- 
mand, they  parade  the  streets  with  banners  and 
music.  Very  well,  so  far;  for  other  associations 
do  the  same,  whenever  they  see  fit.  If  these  dem- 
onstrations do  not  interfere  with  the  general  avo- 
cations and  pursuits  of  the  public,  there  can  be  no 
reasonable  complaint.  The  economy  and  utility  of 
such  demonstrations  is  another  matter;  but  the 
right  to  make  them  need  not  be  disputed. 

But  when,  in  addition  to  this,  a  procession,  in- 
stead of  peaceably  passing  through  the  streets,  pro- 
ceeds to  compel  by  force  every  person  engaged  in  a 
particular  trade  to  quit  his  employment,  the  case  is 
entirely  altered.  The  procession  has  become  a  law- 
less mob,  and  is  to  be  dealt  with  like  any  other  body 
of  men  disturbing  the  public  peace. 


LABOR    COMBINATIONS.  295 

All  demonstrations  of  violence  of  this  kind  are 
in  utter  antagonism,  not  only  to  the  institutions  of 
society  in  general,  but  to  the  real  and  permanent 
interests  of  the  party  which  makes  them.  They  do 
harm,  and  only  harm,  in  the  long-run,  both  eco- 
nomically and  morally,  and  degrade,  instead  of  ele- 
vating, the  laboring  classes,  who  really  have  much 
to  hope  from  their  associations  of  various  kinds,  if 
they  be  peacefully  and  properly  conducted.  There  is 
no  one  thing  by  which  the  interests  of  the  laborer 
can  be  more  effectually  promoted  than  by  associa- 
tions for  good  and  useful  purposes,  managed  in  a 
sensible  and  becoming  manner ;  and,  on  economical 
as  well  as  moral  and  social  considerations,  they 
would  then  be  worthy  the  approbation  and  patron- 
age of  the  capitalist,  whose  interests  would  be 
promoted  thereby;  but  it  should  ever  be  remem- 
bered that  individuality  is  to  be  interfered  with  as 
little  as  possible,  since  the  more  there  is  of  indi- 
vidual responsibility,  socially  and  politically,  the 
better;  the  less  men  are  called  upon  to  resign  their 
freedom  of  action  and  personal  reliance  and  choice 
in  the  various  duties  and  emergencies  of  life,  the 
more  advantageous  to  their  welfare  and  happiness. 

COMBINATIONS   TO    RAISE   THE   RATE   OF   WAGES. 

But  strikes  cannot  permanently  raise  the  rate  of 
wages.  Combinations  of  workmen,  taking  advan- 
tage of  the  peculiar  state  of  trade  when  commodities 
are  in  great  demand,  may,  for  the  moment,  extort, 
from  the  necessities  of  their  employers,  an  addition 
to  their  compensation ;  but  they  gain  no  substantial 


296  DISTRIBUTION. 

advantage.  When  trade  becomes  dull,  they  are  cer- 
tain to  be  placed  again  in  the  power  of  the  employer. 
Especially  is  it  injurious  to  the  interests  of  the  work- 
men, where  by  strikes  they  have  forced  out  of  em- 
ployment large  numbers,  whom  they  are  obliged  to 
support  out  of  previous  accumulations.  In  such 
cases,  they  consume  their  own  little  savings,  injure 
the  interests  of  those  who  have  employed  them,  and 
render  them  less  able  to  pay  wages  in  the  future. 

Freedom,  protection,  and  justice  are  what  labor 
needs,  and  must  have,  or  its  condition  will  be  de- 
pressed, and  its  productiveness  diminished.  With 
freedom,  the  laborer  can  work  for  whom  he  will ; 
with  the  ballot,  he  can  insure  to  himself  and  his 
interests  protection  and  justice. 

CO-OPERATIVE    ASSOCIATIONS. 

There  is  yet  another  mode  in  which  those  who 
depend  upon  wages  may  secure  very  great  advan- 
tages to  themselves;  viz.,  by  co-operative  associa- 
tions, formed  for  trading  or  industrial  purposes. 
These  are  already  somewhat  extensively  introduced 
into  the  United  States;  and,  so  far  as  is  known, 
have  been  attended  with  a  good  degree  of  success. 
Prof.  Fawcett  (now  M.P.),  in  his  "Manual  of  Polit- 
ical Economy,"  has  given  a  very  full  and  interesting 
account  of  certain  co-operative  societies  in  Europe, 
from  which  we  extract  the  following: 

"The  co  operative  movement  in  England  was  first  commenced 
at  Rochdale.*  About  1844,  a  few  working-men  in  that  town  sus- 


*  The  residence  of  John  Bright,  M.P.,  and  where  his  family 
carry  on  a  large  manufacturing  business.  A.  W. 


LABOR  COMBINATIONS.  207 

pected,  and  no  doubt  justly  so,  that  they  were  paying  a  high  price 
for  tea,  sugar,  and  other  such  articles,  when  they  at  the  same  time 
believed  they  were  not  free  from  adulteration.  They  therefore 
said,  'Why  should  we  not  club  together  sufficient  among  our- 
selves to  purchase  a  chest  of  tea  and  a  hogshead  of  sugar  from 
some  wholesale  shop  in  Manchester?'  This  they  did ;  and  each 
one  of  their  number  was  supplied  with  tea  and  sugar  from  this 
common  stock,  paying  ready  money  for  it,  and  giving  the  same 
price  for  it  they  had  been  charged  at  the  shops.  When  all  the  tea 
and  sugar  had  thus  been  sold,  they  agreed  to  divide  the  money 
thus  realized  among  themselves,  in  proportion  to  the  capital  each 
had  subscribed.  They  found,  to  their  surprise,  that  a  large  profit 
had  been  realized.  The  great  advantage  of  the  plan  became  self- 
evident;  for  not  only  were  they  provided  with  a  lucrative  invest- 
ment for  their  savings,  but  they  obtained  unadulterated  tea  and 
sugar  at  the  same  prices  they  had  been  previously  obliged  to  pay 
for  the  same  articles  when  their  quality  was  deteriorated  by  all 
kinds  of  adulteration.  A  fresh  stock  of  tea  and  sugar  was,  of 
course,  purchased.  Other  laborers  were  quickly  attracted  to  join 
the  plan,  and  subscribe  their  savings;  soon  the  society  was  suffi- 
ciently extended  to  justify  them  in  taking  a  room,  which  they  used 
as  a  store,  and  the  success  of  the  plan  fully  kept  pace  with  its 
enlargement. 

"  This  society,  now  famous  as  the  Rochdale  Pioneers,  possessed 
in  1865  a  capital  of  about  £72,000.  The  business  was  not  long 
restricted  to  articles  of  grocery :  bread,  meat,  and  clothing  were 
all  sold  on  the  same  plan.  Their  capital  so  rapidly  increased  that 
they  were  soon  enabled  to  erect  expensive  flour-mills ;  and  a  sup- 
ply of  pure  bread,  as  well  as  unadulterated  tea,  was  thus  insured. 

"A  ready-money  system  is  so  scrupulously  adhered  to  that 
even  a  large  shareholder  cannot  make  the  smallest  purchase  on 
credit.  The  managers  of  the  business  are  chosen  by  the  general 
body  of  shareholders  ;  and,  in  almost  every  case,  an  excellent  selec- 
tion has  been  made. 

"  With  regard  to  distribution  of  the  profits,  a  sufficient  sum  is 
at  first  allotted  to  pay  a  dividend  of  five  per  cent,  on  the  capital ; 
the  remaining  profits  are  divided  on  the  following  plan  :  Every 
person,  when  he  purchases  goods,  receives  one  or  more  tin  tickets, 
on  which  is  recorded  the  amount  of  his  purchases.  At  the  end  of 
every  quarter  each  person  brings  these  tin  tickets,  which  form  the 
record  of  his  aggregate  purchases  ;  and  the  remaining  profits  are 


298  DISTRIBUTION. 

distributed  in  proportion  to  the  aggregate  amount  which  each  in- 
dividual has  expended  at  the  store.  Thirteen  pence  in  the  pound 
(equal  to  about  five  and  a  half  per  cent,  on  the  amount  purchased) 
is  the  average  amount  which,  in  this  manner,  is  received  as  a  draw- 
back." An  annual  dividend  was  made  in  1865  of  £25,000,  among 
6500  members. 

The  reasons  for  this  extraordinary  success  given  by 
Prof.  Favvcett  are  the  ready-money  system,  selling 
for  cash  and  buying  for  cash, — turning  capital  over 
many  times  a  year, — a  large  custom  assured  by  the 
large  membership,  and  economy  of  administration. 

A  very  successful  association  of  co-operative 
masons  has  existed  in  Paris  since  1848,  commenc- 
ing with  seventeen  members,  with  a  capital  of  $70. 
It  has  grown  to  very  large  dimensions,  has  a  capital 
of  over  $70,000,  and  contracts  for  the  building  of 
the  largest  hotels  and  railway-stations.. 


CONCLUSIONS. 

We  have  been  thus  full  in  our  statement  in  regard 
to  co-operation,  because  it  seems  to  offer  a  more 
satisfactory  solution  of  a  great  economical  problem 
— the  relations  of  capital  and  labor — than  any  other 
hitherto  presented ;  and  the  prospect  now  is  that  it 
will  soon  be  introduced  extensively  into  the  trade 
and  manufacturing  industry  of  the  world. 

To  all  this  the  political  economist  does  not  object ; 
on  the  contrary,  he  looks  complacently  on  the  grand 
experiment.  He  will  only  insist  that  co-operative 
undertakings,  as  well  as  all  others,  to  be  successful, 
must  be  carried  on  in  strict  conformity  writh  those 
laws  of  production  and  exchange  which  govern  in- 


LABOR    COMBINATIONS.  299 

dividual  transactions.  Co-operation  can  have  no 
dispensation  from  the  laws  of  trade. 

If  the  management  of  a  co-operative  establish- 
ment is  intrusted  to  incompetent  hands, — to  those 
who  have  neither  the  knowledge  nor  capacity  to 
conduct  it  wisely  and  efficiently,  a  failure  must  be 
the  consequence.  If  dishonest  and  unfaithful  per- 
sons are  employed,  disappointment  and  loss  will  be 
certain ;  and,,  especially  if  credits  are  given,  the 
final  result  will  be  disastrous.  We  regard  it  as  in- 
dispensable that  no  credit  whatever  should  be  granted. 
The  cash  principle  has  been,  so  far  as  we  can  learn, 
strictly  adhered  to  by  co  operators  in  Europe.  The 
example  set  by  the  Rochdale  Pioneers  of  selling  en- 
tirely for  cash  on  delivery,  which  insured  their  mar- 
vellous success,  should  be  everywhere  followed.  We 
could  have  no  faith  whatever  in  any  such  association 
which  bought  and  sold  on  credit.  This  for  several 
reasons : 

1st.  Because  if  credits  were  given,  the  purchases 
must  be  made  on  credit,  and  of  course  the  saving 
which  everybody  knows  is  made  in  purchases  by 
cash  payments  could  not  be  realized.  This  alone 
would  make  a  difference  of  at  least  a  moderate 
dividend  to  the  co-operators. 

2d.  Because  if  credits  are  given,  a  considerable 
additional  expense  must  be  incurred  in  keeping  ac- 
counts and  collecting  bills.  The  attention  of  the 
managers  must  be  divided  and  their  minds  distracted 
by  the  vexations  and  delays  inseparable  from  the 
adjustment  of  book  accounts. 

With  a  co-operative  association,  the  goods  should 
always  be  in  one  hand  or  the  cash  for  them  in  the 


300  DISTRIBUTION. 

other.  Such  companies  cannot  give  and  take  credit 
like  private  firms  and  joint-stock  companies.  As 
every  one  of  the  co-operators  must  be  bound  for 
all  debts  incurred,  every  prudent  man  having  any 
pecuniary  responsibility  would  be  unwilling  to  en- 
tangle himself  with  a  concern  that  might  occasion 
him  loss,  the  extent  of  which  it.  would  be  impossible 
for  him  to  anticipate. 

We  are  thus  decided  and  emphatic  in  regard  to 
the  giving  of  credit  by  the  associations  in  question, 
because  we  desire  a  wide  extension  of  the  co-opera- 
tive principle  and  its  permanent  success,  and  feel 
confident  that  if  immediate  cash  payment  is  not 
insisted  on,  there  will  be  heavy  losses  to  those  who 
can  ill  afford  to  meet  them,  and  the  general  adop- 
tion of  the  principle  be  delayed,  though  we  should 
not  doubt  that  it  would  finally  triumph. 

Co-operation  will  be  found,  of  course,  much  more 
difficult  in  manufactures  than  in  trade,  for  several 
reasons : 

a.  A  larger  capital  will  be  required,  and  a  greater 
proportion  generally  in  that  which  is  fixed,  in  real 
estate,  machinery,  etc. 

6.  There  will  be  greater  need  of  skilled  labor, 
and  a  greater  diversity  of  talents  and  acquirements, 
than  are  demanded  in  the  mere  purchase  and  sale 
of  goods. 

c.  The  number  of  persons  actually  employed  in 
work  will  be  greater;   yet  all  must  work  in  har- 
mony and  to  mutual  satisfaction,  or  there  will   be 
no  successful  result. 

d.  The  sale  of  fabrics,  if  disposed  of  for  cash,  in 
competition  with  the  large  establishments,  private 


LABOR   COMBINATIONS.  301 

and  corporate,  engaged  in  every  branch  of  manufac- 
turing industry,  presents  another  obstacle  to  the 
introduction  of  co  operative  labor.  We  have  long 
regarded  the  credit  system,  so  universally  adopted 
and  so  widely  extended  in  the  United  States,  as  the 
greatest  obstacle  to  a  participation  in  profits  on  the 
part  of  the  laborer. 

6.  Another  very  obvious  consideration  in  regard 
to  the  distinction  between  the  operations  of  a  trad- 
ing and  a  manufacturing  association  is,  that  with  the 
former,  the  customers  of  the  establishment  are 
already  secured  without  effort,  and  their  patronage 
certain,  since  they  will  be  for  the  greater  part  in- 
terested as  members  of  the  concern  ;  while  in  manu- 
factures, it  will  be  generally  true  that  but  a  small 
part  of  all  the  articles  produced  will  be  required  by 
the  wants  of  the  co-operators,  and  consequently 
must  find  a  market,  however  difficult  that  may  be. 

All  these  obstacles  are  overcome  and  the  object 
fully  attained  by  adopting  another  form  of  associa- 
tion, which  may  perhaps  be  properly  called 

CO-OPERATIVE    PARTNERSHIPS. 

Well-established  firms  in  any  department  of  in- 
dustry may  ofler  the  workmen  in  their  employ  a 
share  in  the  net  profits  of  their  establishments.  For 
example,  a  coal-mining  company  may  propose  that 
after  allowing  a  certain  profit  upon  the  capital  em- 
ployed, the  workmen  shall  receive,  say  ten  per  cent, 
of  the  net  profits  of  each  year,  to  be  divided  among 
the  workmen  according  to  the  amount  of  labor  per- 
formed by  each  during  the  year. 

2(5 


302  DISTRIBUTION. 

This  has  been  tried  with  most  favorable  results  in 
Great  Britain,  France,  and  other  parts  of  Europe, 
and  it  has  been  found,  in  some  cases  at  least,  if 
not  in  all,  that  the  workmen  were  so  much  more 
efficient  and  careful  of  making  waste  of  tools, 
machinery,  and  materials,  that  while  receiving  an 
addition  to  their  wages  by  a  share  of  the  profits,  the 
entrepreneurs  or  employers  have  not  diminished  their 
incomes.  This  has  not  only  given  satisfaction  to 
both  parties,  but  has  increased  production.  The 
influence  upon  the  morals  of  the  laboring  classes 
has  been  excellent. 

The  results  of  experiments  of  this  sort  thus  far 
made  seem  to  show  that  this  kind  of  co-operation 
will  be  adopted  to  a  large  extent  in  certain  depart- 
ments of  production.  That  it  is  feasible  in  any 
established  business  is  certain;  that  it  will  be  gen- 
erally adopted  depends,  as  it  now  seems,  upon  the 
enlightened  self-interest  of  employers.  That  it 
may  become  very  general  in  all  the  principal  me- 
chanical and  manufacturing  industries  is  at  present 
highly  probable.  It  rests  entirely  with  the  employ- 
ing class  to  say  to  what  extent  it  shall  be  carried. 
It  is  not  necessary  for  the  accomplishment  of  the 
object  sought  that  employers  should  relinquish  in 
any  degree  the  entire  control  and  management  of 
their  business  affairs.  It  is  only  a  share  of  the  net 
profits  with  which  the  laborer  has  any  concern. 

REDUCTION    OF   THE    HOURS    OF   LABOR. 

An  extensive  movement  is  being  made  in  the 
United  States  and  Europe  to  reduce  the  number  of 
hours  constituting  a  day's  work. 


LABOR    COMBINATIONS.  303 

The  present  limit  is  generally  ten  hours,  and 
eight  hours  is  demanded, — equal  to  a  difference  of 
twenty  per  cent.  This  movement  is  an  important  one, 
affecting  in  its  results  not  only  the  strictly  laboring 
class  but  all  others,  and  therefore  entitled  to  a  care- 
ful examination. 

What  will  be  the  economic  effects  of  the  pro- 
posed change  were  it  practicable? 

Only  in  one  of  three  ways  can  the  object  be 
attained :  1st,  by  the  universal  consent  of  the  em- 
ploying class;  2d,  by  the  equally  universal  consent 
of  the  laboring  class ;  or  3dly,  by  the  authority  of 
law. 

a.  That  the  employing  class  (entrepreneurs)  will 
voluntarily  consent  to  the  contraction  of  their  opera- 
tions by  twenty  per  cent,  and  the  corresponding  loss 
in  the  use  of  their  entire  capital  employed  in  produc- 
tion, is  not  to  be  expected. 

6.  That  the  laboring  class  will  unanimously  agree 
to  reduce  their  hours  of  labor,  and  consequently  their 
incomes  by  twenty  per  cent,  is  not  to  be  supposed, 
especially  when  a  great  proportion  of  them  now 
work  by  the  piece,  and  would  rather  extend  than 
contract  their  hours  of  employment.  Precisely  how 
great  the  proportion  of  piece-workers  is  has  never 
been  determined  that  we  know  of,  but  from  some- 
what extended  .inquiries  we  have  ascertained  that 
in  many  of  the  largest  establishments  the  proportions 
of  this  class  of  workmen  is  equal  to  fifty  to  eighty 
per  cent,  of  the  whole,  and  the  constant  tendency  is 
to  the  increase  of  piece-work  by  new  inventions  of 
machinery  adapted  to  the  purpose. 

c.  Whether  the  government  of  any  country  can 


304  DISTRIBUTION. 

be  induced  to  enact  that  no  man  shall  work  for 
wages  more  than  eight  hours  per  day,  will  certainly 
depend  in  all  republics  upon  the  sentiments  of  the 
people.  If  the  object  commends  itself  to  the  intel- 
ligence and  good  sense  of  the  constituency  to  such  an 
extent  that  the  necessary  enactment  can  be  secured 
and  enforced,  the  object  may  be  effected.  This  seema 
at  present  the  only  possible  practicable  way  to  es- 
tablish eight  hours  as  a  day's  work.  Waiving  all 
objections  to  such  a  measure  that  may  here  be  stated, 
let  us,  for  the  sake  of  the  argument,  suppose  that  the 
eight-hour  limit  is  fully  established  as  a  day's  labor. 

EFFECTS    OF    RESTRICTING    THE   HOURS    OF   LABOR. 

The  first  effect  of  this  must  be  to  reduce  the 
amount  of  commodities  produced.  It  is  certain  that 
men  cannot  produce  as  much  in  eight  as  in  tea 
hours,  and  consequently  production  must  be  propor- 
tionally diminished.  We  know  it  has  been  claimed 
that  as  much  can  be  produced  in  eight  hours  as  in 
ten,  because  the  workman  can  labor  with  more 
energy  and  efficiency  for  the  shorter  than  the  longer 
time ;  but  the  practical  question  is,  will  he  ?  Why 
should  he  ?  Will  he  have  any  greater  inducement, 
any  stronger  motive  ?  He  is  still  at  work  by  the 
day,  and  what  difference  can  it  make  to  him  whether 
he  works  faster  or  slower  so  that  he  works  as  fast  as 
his  fellow-laborers  generally  ?  Certainly  none  at 
all.  Why,  then,  should  he  use  extra  effort?  We 
may  safely  conclude  he  will  not,  and  consequently 
production  must  in  the  long-run  be  lessened  to  the 
extent  of  the  diminution  of  labor  time. 


LABOR  COMBINATIONS.  305 


ECONOMIC  EFFECTS  UPON  THE  LABORER. 

Will  the  laborer  secure  as  large  compensation  for 
eight  as  for  ten  hours  ?  It  has  been  contended  with 
great  earnestness  and  apparent  sincerity  that  he  will ; 
indeed,  it  has  been  insisted  that  he  will  get  higher 
wages. 

To  ascertain  the  truth  of  this,  let  us  suppose  that 
fifty  hours'  labor  are  required  to  produce  a  gold 
eagle  worth  ten  dollars.  Then  working  ten  hours 
per  day  the  miner  would  get  an  eagle  in  five  days, 
giving  him  two  dollars  per  day  as  wages  ;  working 
eight  hours  per  day,  he  must  expend  six  and  a 
quarter  days  in  getting  his  ten  dollars'  worth  of  gold, 
and  his  wages  would  be  but  $1.60  per  day,  because 
$1.60x6.25  =  $10.00. 

The  same  result  would  be  equally  certain  in  regard 
to  every  other  product.  It  matters  not  in  what  form 
the  value  is  produced,  the  amount  will  be  as  the 
quantity  of  labor  required ;  and  therefore,  by  an  in- 
exorable law,  the  compensation  or  wages  will  be  in 
the  same  proportion. 

The  mistake  of  those  who  assume  the  contrary, 
arises  from  not  taking  into  consideration  the  differ- 
ence between  money-wages  and  commodity-wages, 
or  nominal  and  real  wages. 

The  question  for  the  laborer  or  salaried  man  to 
consider  is,  not,  as  we  "have  elsewhere  said,  how 
many  dollars  he  can  get  for  his  labor,  but  how  much 
of  food,  clothing,  shelter,  and  other  desirable  objects 
he  can  secure ;  and  in  that  view  of  the  case,  if  he 
shortens  the  hours  of  his  labor  he  will  diminish  to 

20* 


306  DISTRIBUTION. 

an  equal  extent  the  compensation  he  receives, 
whether  he  is  working  for  himself  or  on  wages. 

As  this  is  an  important  point  in  our  discussion, 
we  give  the  following  illustration : 

Suppose  a  hat  to  require  thirty  hours',  or  three 
days',  labor,  of  ten  hours  each,  and  a  pair  of  boots 
an  equal  quantity.  The  hatter  can  then  obtain  a  pair 
of  boots  for  three  days'  labor,  and  the  bootmaker  a  hat 
for  the  same.  But  the  eight-hour  limit  being  adopted, 
the  hatter  must  work  three  days  and  three-quarters 
for  his  boots,  and  the  bootmaker  the  same  length  of 
time  for  his  hat.  Each  party  makes  a  loss  of  six 
hours,  or  three  quarters  of  a  day,  upon  his  purchase; 
each  must  expend  the  labor  of  three-fourths  of  a  day 
more  to  obtain  his  object — equal  to  a  loss  upon  the 
laborer's  full  time  of  twenty  per  cent.,  and  that  must 
be  the  actual  average  loss  upon  his  whole  wages  by 
restricting  him  to  eight  nours'  production  instead  of 
ten.  He  works  twenty  per  cent,  less  time,  and  has 
for  the  same  number  of  days'  work  twenty  per 
cent,  less  of  commodities ;  he  virtually  reduces  his 
entire  income  to  that  extent. 

The  great  point  overlooked  by  those  who  expect 
equal  wages  for  less  labor  is,  that  the  laborer  is  a 
consumer  as  well  as  producer, — that  he  consumes  as 
much  in  some  form  as  he  produces ;  for  if  he  saves 
money  to  purchase  or  build  a  house,  or  invest  in 
any  other  manner,  the  result  to  him  will  be  same, 
for  all  values  will  be  equally  affected. 

A  simple  proposition  will  clear  up  much  obscurity 
in  regard  to  the  point  under  consideration.  It  is 
this :  A  general  rise  of  wages  is  of  no  advantage  to 
those  who  work  for  wnges ;  that  is,  if  throughout 


LABOR    COMBINATIONS.  307 

the  world  all  wages  were  advanced  equally,  the  result 
to  the  wages  class  would  be  the  same  as  if  no  such 
advance  had  taken  place.  If  the  laborer  should  get 
more  money  for  his  labor,  he  must  pay  more  for  all 
his  purchases;  because  values  would  not  be  increased, 
even  if  prices  were  advanced. 

Again,  if  as  much  compensation  can  be  had  for 
eight  hours  as  for  ten,  why  not  as  much  for  six 
hours  as  for  eight,  for  four  hours  as  for  six,  for  two 
hours  as  for  four? 

If  the  principle  assumed,  that  as  high  wages  may 
be  had  for  the  shorter  as  for  the  longer  time,  were 
sound,  it  would  hold  throughout ;  but  we  see  it  does 
not,  that  it  becomes  absurd,  and  therefore  conclude 
it  to  be  false. 


EFFECTS    UPON   CAPITAL. 

Another  consideration  connected  with  this  subject 
is  the  effect  that  a  diminution  of  labor  would  have 
upon  capital. 

Its  profits,  like  the  workman's  wages,  must  be 
abridged,  and  the  increment  that  could  be  yearly 
added  to  it  would  be  diminished.  If  production 
were  reduced  by  one-fifth,  the  previous  increment 
would  be  reduced  far  more  than  that,  because  there 
could  not  be  so  large  a  surplus  over  necessary  con- 
sumption. A  greater  part  of  the  gross  earnings 
must  be  consumed.  Then,  should  the  population 
go  on  increasing  at  its  former  rate,  while  capital 
was  increasing  at  a  slower  one,  the  latter  would 
eventually  become  more  scarce,  and  consequently 
more  difficult  of  attainment.  Would  this  inure  to 


308  DISTRIBUTION. 

the  advantage  of  the  capitalist,  the  labor  class,  or 
the  country  generally? 

The  loss  that  arises  from  a  redaction  of  the  hoars 
devoted  by  labor  and  capital  to  the  production 
of  wealth  must  fall  upon  both ;  but  the  greatest 
loss  in  the  aggregate  must  fall  upon  the  laboring 
classes,  because  they  are  by  far  the  most  numerous. 
If  it  requires  five  days'  labor  to  produce  a  barrel  of 
flour  instead  of  four,  it  is  clear  that  the  class  con- 
suming the  most  flour  must  be  the  greatest  sufferer. 

Time  is  the  working-man's  capital,  that  which  he 
uses  in  the  production  of  wealth.  If  there  be  three 
hundred  working  days,  of  ten  hours  each,  in  a  year, 
he  has  three  thousand  hours  per  annum  to  invest, 
through  his  labor,  in  such  commodities  as  he  de- 
sires. At  eight  hours  per  day  he  would  have  but 
twenty-four,  hundred.  The  latter  limit  being  uni- 
versally adopted,  must  not  the  aggregate  production 
of  the  world  be  diminished  by  one-fifth  ?  Then,  if 
the  dividend,  or  amount  to  be  divided,  is  reduced 
one-fifth,  must  not  the  individual  quotient,  or  each 
one's  share,  be  equally  diminished?  And  must  not 
the  same  principle  apply  to  the  capitalist  whose 
operations  are  curtailed  in  the  same  proportion  ? 

It  may  be  said  that  it  has  never  been  proposed 
that  eight  hours  should  be  fixed  as  the  limit  of  labor 
for  the  whole  industry  of  a  nation,  but  only  for  that 
part  of  it  engaged  in  manufactures  and  mechanical 
employments.  But  what  would  be  the  result  of  such 
an  arrangement? 

If  the  agriculturist  must  work  ten  hours,  while 
the  shoemaker,  for  example,  wrought  only  eight, 
is  it  not  certain  that  farm-laborers  would  become 


LABOR    COMBINATIONS.  309 

shoemakers  so  fast  as  in  a  short  time  to  reduce  the 
wages  of  the  latter  to  an  equality  with  the  former? 
No  one  can  reasonably  doubt  that  such  would  be 
the  result. 

"We  have  endeavored  thus  far  to  show  only  some 
of  the  economic  effects  that  must  follow  a  reduction 
of  the  hours  of  labor. 

Of  the  social  and  moral  results  of  such  a  measure 
we  have  said  nothing.  That  subject  is  not  within 
our  province.  It  belongs  to  the  dominion  of  soci- 
ology. 

It  may  be  true  that,  notwithstanding  all  that  has 
been  offered,  however  correct  it  may  be,  it  is  for  the 
best  interests  of  all  mankind  that  the  proposed  re- 
duction of  the  hours  of  labor  should  take  place. 
There  are  certainly  other  and  higher  considerations 
than  the  greatest  production  and  accumulation  of 
wealth.  Would  society  be  improved  and  elevated 
by  such  a  reduction  ?  Would  the  highest  interests  of 
man,  whether  laborer  or  capitalist,  be  promoted  by 
it  ?  This  problem  it  is  the  province  of  social  science 
to  examine  and  solve. 

EQUALIZATION    OF   WAGES. 

It  is  maintained  and  practically  enforced  by 
some  labor  associations  that  all  workmen  in  the 
same  trade  should  have  equal  wages,  the  active  and 
the  stupid,  the  skilful  and  unskilful,  the  indus- 
trious and  the  indolent.  So  that  they  are  employed, 
all  must  stand  on  the  same  level.  It  is  sufficient 
to  say  that  such  a  policy  must  repress  all  emula- 
tion, all  desire  for  improvement,  and  all  progress; 
for  the  good  reason  that  men  do  not  act  except  from 


310  DISTRIBUTION. 

a  motive,  and  there  could  be  no  emulation,  no  motive 
for  improvement,  where  there  was  no  reward  for  it. 
Should  such  an  unwise  policy  be  generally  adopted 
(which  seems  in  the  highest  degree  improbable), 
the  production  of  wealth  would  be  greatly  dimin- 
ished and  the  laboring  classes  sadly  demoralized. 

INTERFERENCE   WITH   APPRENTICESHIP. 

In  some  associations  attempts  have  been  made, 
and  with  more  or  less  success,  to  prevent  the  in- 
crease of  workmen  in  a  particular  branch  of  indus- 
try, by  forbidding  any  one  to  employ  apprentices 
except  under  certain  restrictions  and  limitations. 

This  is  a  direct,  arbitrary,  and  most  dangerous  in- 
terference with  that  freedom  of  labor  which  is  en- 
tirely essential  to  the  greatest  production  of  wealth 
and  the  most  complete  harmony  of  industrial  in- 
terests. 

With  freedom  to  enter  or  leave  any  particular 
branch  of  production,  it  is  certain  that  under  the 
natural  law  of  supply  and  demand,  each  would 
secure  just  that  amount  of  labor  which  its  own 
best  interests  and  the  general  welfare  required ; 
while  under  a  labor  monopoly  like  that  of  which  we 
speak,  the  trade  itself  for  whose  benefit  it  was  de- 
signed would  not  be  developed  in  its  true  propor- 
tions, and  the  public  in  general  would  be  injured. 
Were  the  same  policy  adopted  by  all  trades,  a  gen- 
eral war  of  interests  would  be  the  certain  conse- 
quences, resulting  in  general  disadvantage. 

A  combination  to  prevent  the  learning  of  a  trade 
in  no  way  differs  in  its  effects  from  any  other  mo- 


PROFITS.  311 

nopoly  or  interference  with  the  industry  of  a  coun- 
try,— it  interrupts  only  to  diminish  production  and 
demoralize  labor. 


CHAPTER  V. 

PROFITS. 

BY  the  term  "profits,"  we  mean  that  share  of 
wealth  which,  in  the  general  distribution,  falls  to 
those  who  effect  an  advantageous  union  between 
labor  and  capital. 

All  wealth,  being  the  product  of  labor  and  capital, 
would  be  divided  between  them,  were  it  not  neces- 
sary that  still  another  agent  should  take  part  in 
production;  viz.,  an  employer,  manager,  under- 
taker* (entrepreneur),  projector,  contractor,  business 
man,  merchant,  manufacturer,  farmer,  or  whatever 
else  he  may  be  called,  whose  services  are  indis- 
pensable. 

Capital  cannot  move  itself;  labor  cannot  com- 
mand capital,  and  therefore  has  little  power:  hence 
the  necessity  for  an  employer,  or  business  man,  to 
effect  a  union,  and  put  both  in  successful  operation. 
Capital  without  labor  is  an  infant;  labor  without 
capital,  a  cripple. 

*  "  It  is  to  be  regretted,"  says  J.  Stuart  Mill,  "that  this  word, 
in  this  sense,  is  not  familiar  to  the  English  ear.  French  political 
economists  enjoy  a  great  advantage  in  being  able  to  speak  of  le» 

profits  de  Ventrepreneur."  ^^— -  i  '    i — ^-^^ 

x^\7\  B  R  A  R  y^. 
/        W  OF  THE  X 

UNIVERSITY    I 

t4\b^ 


312  DISTRIBUTION. 

The  parties,  then,  to  production  are,  (1)  the 
laborer;  (2)  the  capitalist;  (3)  the  employer,  or 
manager.  Each  has  a  distinct  province,  and  a 
separate  interest;  and  each  must  receive  his  reward, 
or  share  of  the  general  product. 

This  is,  undoubtedly,  the  natural  division  of  the 
subject.  To  confound  the  capitalist  with  the  em- 
ployer, as  often  fs  done,  throws  the  whole  matter 
into  confusion.  There  is  no  occasion  whatever  for 
this.  The  man  who  owns  the  capital,  and  receives- 
his  compensation  for  its  use  in  the  shape  of  rent, 
or  interest;  the  laborer,  who  applies  muscular  or 
mental  power  to  the  production  of  value;  and  the 
man  who,  as  employer  or  manager,  relieves  the  first 
from  the  anxiety  and  risks  of  trade,  and  furnishes 
the  second  with  the  means  by  which  alone  he  can 
work  to  advantage, — are  separate  persons,  with  dis- 
tinct interests. 

The  capitalist,  as  such,  has  no  share  in  the  profits 
of  business.  He  does  nothing  but  loan  his  wealth, 
which,  by  the  value  of  its  services,  brings  him  an 
income,  in  the  shape  of  rent  for  real,  or  interest  for 
personal,  estate.  If  he  is  careful  in  regard  to  the 
securities  he  takes  or  the  credit  he  gives,  it  is  of  no 
immediate  consequence  to  him  whether  trade  is  dull 
or  brisk,  whether  profits  are  high  or  low;  but,  of 
course,  it  is  true  that  the  capitalist  has  a  general 
interest  in  the  profits  of  business,  to  this  extent, — 
that  unless  profits,  in  the  long-run  and  on  the  aver- 
age, are  such  that  the  business  man  can  afford  to 
pay  the  usual  rate  of  interest,  the  compensation  of 
the  capitalist,  or  his  share  in  the  general  distribu- 
tion, must  be  reduced. 


PROFITS.  313 

On  the  other  hand,  to  the  employer,  in  whatever 
department  of  business,  the  question  of  profits  is 
vital.  His  success  depends  upon  the  amount  he  can 
secure,  after  meeting  all  his  necessary  expenditures 
for  labor,  rent,  interest,  taxes,  insurance,  bad  debts, 
etc. 

It  often  happens  that  the  employer  (manufacturer, 
merchant,  etc.)  is  the  owner,  in  whole  or  in  part,  of 
the  capital  used.  This  in  no  wise  alters  the  case ; 
for  then  he  receives  income  both  for  his  capital  and 
his  labor,  or  efforts.  He  saves  all  the  interest  he 
would  otherwise  pay  to  the  capitalist ;  he  pays  in- 
terest to  himself.  He  may  own  the  buildings  he 
occupies;  and  in  so  far  he  is  a  capitalist,  paying 
rent  to  himself. 

It  is,  then,  by  this  triple  alliance  of  enterprise, 
capital,  and  labor  that  all  production  is  effected; 
and  between  them,  in  the  final  result,  it  should  be 
shared.  The  economical  question  is,  How  shall  an 
equitable  division  be  attained  ? 

"We  have  previously  said,  in  relation  to  capital 
and  labor,  that  there  must  be  a  just  proportion  of 
each  to  the  most  efficient  production,  —  sufficient 
labor  for  the  capital,  and  capital  for  the  labor:  so 
there  must  be  sufficient  enterprise,  business  talent, 
and  tact  to  use  both;  and  the  several  parties  must 
be  left  to  act  voluntarily,  under  the  instincts  of  hu- 
man nature  and  the  laws  of  value.  Indeed,  the  great 
difference  in  the  wealth  of  nations  is  made  by  the 
business  class:  mind  is  more  effective  than  muscle. 

With  perfect  equality  and  freedom  of  action,  each 
will  certainly  obtain  the  share  that  belongs  to  him. 
Laws  in  regard  to  this,  as  all  other  property  rela- 

27 


314 


DISTRIBUTION. 


tions,  are  not  needed  to  direct  human  industry,  but 
to  control  human  passion;  to  prevent  one  party  from 
trespassing  upon  the  rights  of  the  other. 

It  has  been  common  to  speak  of  the  profits  of 
capital,  instead  of  the  profits  of  business.  This  is 
a  mistake  which  confounds  necessary  distinctions. 
The  profits  of  trade,  or  business,  are  to  be  reckoned 
upon  the  amount  transacted,  not  upon  the  capital  em- 
ployed. The  difference  between  the  two  modes  is 
often  very  great. 

We  give  the  following  table  as  an  illustration  of 
what  we  mean : 

Difference  of  Profits  as  computed  on  the  Capital  employed  or  the 
Business  transacted. 


Ex- 

CAPITAL 
EMPLOYED. 

Sale?. 

Rate  of  Pro- 
fits on  Sales. 

Gross 
Profits. 

penses, 
includ- 
ing In- 
terest. 

Net 
Profits. 

Net  Fronts, 
if  reckoned 
on  Capital. 

Net  Profits, 
if  reckoned 
on  Business 
done. 

$100,000 
20,000 

$500,000 
150,000 

15  per  cent. 
10    "      " 

$75,000 
15,000 

$25,000 
7,500 

$50,000 
7,500 

50  per  cent. 
37^"  " 

10  per  cent. 
5     "  " 

10,000 

30,000 

30   "     " 

9,000 

2,000 

7,000 

70  "  " 

26%"  « 

50,000 

350,000 

5    "     " 

17,500 

7,500 

10,000 

20  "  " 

<L%«  " 

The  actual  transactions  of  business  present  an 
endless  variety,  of  which  the  above  may  be  taken 
as  samples. 

The  object  aimed  at  by  the  business  man  is  to 
obtain  as  large  a  net  profit  as  possible,  irrespective 
of  the  per  centum  of  the  profit  on  the  capital 
employed. 

RATE   OF    PROFITS. 

There  is  a  constant  tendency,  in  the  progress  of 
society,  to  a  decline  in  the  .rate  of  profits;  i.e.  as 
has  just  been  said,  of  profits  upon  business  done. 


PROFITS.  315 

1st.  From  the  acceleration  of  exchanges,  or  the 
rapidity  with  which  capital  is  used;  in  consequence 
of  which,  the  same  absolute  remuneration  can  be 
obtained  with  less  charge  on  each  transaction. 

2d.  From  the  increasing  number  of  those  who, 
by  education  and  training,  are  qualified  for  inde- 
pendent business. 

3d.  From  increasing  facilities  for  intercourse  by 
steam,  on  land  and  sea,  and  the  consequent  diffusion 
of  intelligence  in  regard  to  prices  and  markets. 

The  rate  of  profit  can  never  be  arbitrarily  fixed 
where  there  is  free  competition,  any  more  than  the 
wages  of  labor;  yet  in  a  given  country,  or  mart  of 
trade,  there  may  be  an  actual  average  rate  which  all 
individuals  strive  to  attain  ;  say,  for  example,  ten 
per  cent.  As  a  matter  of  fact,  each  individual  ob- 
tains all  he  can.  He  does  this,  especially  in  places 
of  large  trade,  by  charging  as  much  advance  on 
every  article  as  he  finds  it  will  bear.  If  his  rate  is 
too  high,  his  custom  will  fall  off;  or,  if  he  has  cus- 
tomers, they  will  be  of  a  hazardous  class,  by  whose 
delinquencies  he  will  lose  more  than  he  can  gain  by 
their  patronage.  Then,  again,  it  is  practically 
true,  that  scarce  any  two  commodities  pay  the  same 
rate  of  profit;  some,  it  may  be,  only  two,  some  ten, 
some  twenty  per  cent.  And,  further,  while  in  the 
same  street  one  man  sells  his  goods  at  ten  per  cent., 
another  is  selling  at  seven  and  a  half  per  cent.,  and 
is  making  a  larger  amount  of  net  profits  at  that. 
"Why  is  this  ? 

First.  The  latter  buys  more  shrewdly;  secondly, 
he  carries  on  his  business  more  by  his  own  efforts, 
and  with  less  expense ;  and,  lastly,  sells,  as  he  will 


316  DISTRIBUTION. 

be  likely  to  do,  to  reliable  men,  who  most  certainly 
discover  where  they  can  purchase  to  the  greatest 
advantage. 

RAPIDITY  OF   EXCHANGE. 

The  necessary  rate  of  profit  depends  greatly  on  the 
rapidity  of  sales,  as  compared  with  the  capital  em- 
ployed and  the  expense  of  conducting  business. 

Large  sales,  with  small  profits,  or  a  rapid  turning 
of  capital,  is  the  natural  tendency  of  trade,  as  popu- 
lation and  wealth  increase,  and  especially  as  credits 
are  diminished.  Those  who  sell  for  cash  have  im- 
mensely the  advantage  of  those  who  give  long 
credits,  particularly  under  a  mixed  currency,  which 
so  largely  increases  the  hazards  of  trade. 

In  those  communities  in  which  the  people  are 
generally  poor,  and  their  wants  great  and  pressing, 
as  in  newly-settled  countries,  credits  are  naturally 
much  extended,  and,  of  course,  the  rate  of  profits 
proportionally  increased.  This  is  known  to  be  the 
case  over  a  large  part  of  our  Western  States.  The 
people  can  afford  to  pay  large  profits,  if  by  so  doing 
they  can  get  the  use  of  capital,  because  capital  pro- 
duces so  large  a  return;  as,  for  example,  one  thou- 
sand dollars  invested  in  the  spring  in  ploughing  the 
prairie,  and  getting  in  a  crop  of  wheat,  will,  not  un- 
likely, give  a  net  profit,  within  six  months,  of  one 
hundred  per  cent.  But  when  such  communities 
accumulate  capital,  and  are  able  to  pay  as  they  pur- 
chase, they  come  to  huy  at  greatly  reduced  rates, 
and  profits  fall  to  the  minimum.  The  average  rate 
of  profits  in  a  country  is  determined  by  the  same 


PROFITS.  317 

law  as  wages.  Profits  are  merely  wages  received  by 
the  employer.  This  idea  should  be  kept  constantly  in 
mind. 

If  there  are  more  laborers  than  are  wanted,  wages 
fall ;  if  fewer,  they  advance:  just  so  with  employers, 
or  business  undertakers.  If  there  are  too  many 
competing  for  profits,  the  rate  will  fall  until  the 
excess  is  driven  back  into  the  ranks  of  labor.  As 
there  are,  however,  comparatively  few,  in  proportion 
to  the  whole  number  of  persons  capable  of  labor, 
who  have  the  requisite  capacity  and  training  re- 
quired for  transacting  business  successfully,  and 
fewer  still  who  can  command  the  necessary  means 
or  capital,  it  will  follow  that  the  rewards  of  the  em- 
ployer will  be  larger  than  those  of  the  persons  em- 
ployed. But  we  must  not  forget  that  this  difference 
is  less  than  at  first  appears,  because  our  observation 
shows  us  that,  of  all  who  undertake  to  trade  or 
manufacture,  a  large  majority  become  bankrupts; 
and,  consequently,  the  average  difference  between 
the  employer  and  the  employed  is  greatly  reduced. 

There  is,  undoubtedly,  a  constant  tendency  to  an 
equalization  and  reduction  of  profits  from  continual 
improvements  in  the  means  of  locomotion,  and  the 
increasing  intelligence  of  the  people.  The  opening 
of  railroads  has  wrought  a  revolution  in  this  par- 
ticular. These  not  only  greatly  reduce  the  cost  of 
transportation,  but  the  average  rate  of  profits. 


318  DISTRIBUTION. 


DIVIDENDS. 

A  large  share  of  the  income  received  by  owners 
of  capital,  at  the  present  day,  comes  in  the  form  of 
dividends  on  stock,  held  in  corporations  and  joint- 
stock  companies,  formed  for  almost  every  conceiv- 
able purpose.  The  introduction  of  railroads  has 
caused  immense  investments,  the  income  from  which 
is  received  in  dividends.  How  are  these  to  be 
classed  ?  They  cannot  be  regarded  as  synonymous 
with  interest,  or  rent :  they  must  be  considered  as 
profits.  They  are  received  for  the  profits  of  busi- 
ness done  by  proxy.  The  capitalist  may  not  have 
the  slightest  agency  in  the  affairs  of  the  company 
from  which  he  gets  an  income  ;  still,  he  is  a  partner, 
though  a  limited  and  silent  one,  and  receives  his 
share  of  the  profit  or  loss. 

It  may  be  objected,  that  bank  dividends  must 
surely  be  classed  with  interest,  since  they  are  made 
up  wholly  of  interest  received  for  the  loan  of  capital. 
This  is  not  strictly  correct.  No  inconsiderable 
share  of  profit  to  the  banks  of  the  United  States  is 
derived  from  the  premiums  charged  for  exchange. 
American  banks  are  exchange-brokers.  Besides, 
nearly  one-half  of  all  the  income  of  mixed-currency 
banks  is  derived  from  the  manufacture  of  currency, 
not  the  loaning  of  money  or  capital.  Although  divi- 
dends of  his  kind  approach  nearer  to  interest  than 
those  of  ordinary  business  corporations,  still  they 
are  most  properly  classed  with  profits. 


INTEREST.  319 


CHAPTER    VI. 

INTEREST. 

WHAT  is  paid  for  the  use  of  money,  or  any 
other  form  of  loanable  capital,  is  called  "interest." 
Hence  the  term  "  usury." 

interest  has  its  justification  in  the  right  of  prop- 
erty. If  a  man  can  claim  the  ownership  of  any 
kind  of  wealth,  he  is  the  owner  of  all  it  fairly  pro- 
duces. Past  labor  has  all  the  sacredness  of  present 
labor,  and  as  justly  claims  its  reward.  An  associate 
in  production,  it  is  entitled  to  a  share  in  the  prod- 
uct. Whoever  by  labor  produces  wealth,  and  by 
self-denial  preserves  it,  should  be  allowed  all  the 
benefit  that  wealth  can  render  in  future  production. 
This  is  the  only  condition  upon  which  the  largest 
accumulation  of  wealth  can  be  secured;  it  presents 
the  only  motive  that  can  withstand  the  impulse  to 
immediate  gratification.  The  desire  to  gain  and 
the  desire  to  spend  are  both  in  human  nature,  arid 
are  conflicting  passions.  What  one  takes,  the  othei 
must  relinquish.  If,  therefore,  the  desire  to  spend 
is  unchecked,  all  wealth  and  physical  well-being  dis- 
appear in  riot  and  wastefulness.  There  is  the  further 
consideration,  that,  since  to  loan  capital  is  to  incur 
risk,  that  risk  should  be  compensated.  It  has  been 
a  favorite  idea  with  many  visionary  writers,  that 
interest  can  be  entirely  done  away  with.  Proudhon 
and  others  have  speculated  and  theorized  much  on 


3*20  DISTRIBUTION. 

this  subject;  but  nothing  can  be  more  idle.  We 
can  no  more  get  rid  of  interest  than  value:  both  are 
in  the  laws  of  nature.  Yet  this  has  been,  in  the 
view  of  many,  the  philosopher's  stone,  that  was  to 
transmute  all  baser  metals  into  gold.  It  is  akin  to 
the  idea  that  credit  can  be  made  to  take  the  place 
of  value,  and  is  sustained  by  the  same  sort  of  reason- 
ing as  that  "property  is  a  crime;  a  monopoly  that 
must  be  destroyed." 

We  will  notice  briefly  a  few  of  the  main  princi- 
ples that  govern  the  rate  of  interest  the  world  over. 

1st.  Interest,  in  its  general  rate,  will  be  determined 
by  the  productiveness  of  labor  in  the  community 
where  it  is  employed.  It  is  evident  the  reward  of 
capital  cannot  be  larger  than  the  total  profits  of  busi- 
ness, because  it  would  no  longer  be  used;  nor  can 
it  be  equal  to  these  profits,  for  no  one  would  be  dis- 
posed to  employ  it  and  pay  out  his  whole  profits  for 
its  use.  Interest  must,  therefore,  be  less  than  the 
aggregate  amount  of  the  returns  of  production;  and 
finding,  as  it  does,  a  competitor  in  present  labor, 
capital  will  be  obliged  to  submit  to  an  equitable 
division. 

USURY   LAWS. 

2d.  Interest  will  be  governed  by  the  law  of  sup- 
ply and  demand.  This  is  so  evident  as  not  to  require 
argument  or  proof,  hardly  illustration.  Old  coun- 
tries abound  in  accumulations  of  capital.  Interest  is 
there  found  cheap.  In  all  new  countries,  there  is  a 
youthfulness  of  capital ;  there  has  not  been  time  to 
develop  the  powers  of  production;  and  hence  inter- 
est is  high.  The  United  States  of  America  afford  a 


INTEREST.  321 

most  striking  example  in  point.  There  is  a  vast 
amount  of  uncultivated  but  fertile  land,  while  the 
amount  of  capital  with  which  to  cultivate  it  is  com- 
paratively small.  So  of  its  manufacturing  capacities. 
Hence  there  is  a  high  general  rate  of  interest.  This 
is  governed  by  the  supply  and  demand,  i.e.  by  the 
laws  of  value  alone,  and  should  never  be  interfered 
with  by  legal  enactments. 

This  is  a  lesson  mankind  have  been  slow  to  learn; 
yet  the  most  commercial  nation  in  the  world  (Great 
Britain)  has  abolished  all  usury  laws.  The  experi- 
ment was  at  first  made  with  great  caution,  limiting 
the  exemption  to  a  particular  kind  of  paper,  and  the 
time  in  which  it  should  operate  to  a  few  months; 
but  it  was  found  so  perfectly  satisfactory  to  the 
community,  that,  after  a  fair  trial,  the  abolition  of 
the  usury  laws  was  made  final  and  complete. 

But,  upon  a  question  so  much  in  dispute,  it  may 
be  desirable  to  give  the  principal  reasons  why  the 
matter  of  interest  should  not  be  interfered  with  by 
law. 

(a)  When  it  is  made  a  penal  offence  to  take  over  a 
certain  per  cent,  interest,  if  money  is  worth  more,  as 
it  often  will  be,  it  will  be  obtained  by  some  indirect 
process.  Most  persons  do  not  like  to  directly  violate 
a  law,  however  foolish  or  unjust  they  may  deem  it 
to  be ;  consequently,  they  will  attempt  to  evade  it. 
There  is  no  difficulty  in  this.  A  note  may  be  sold 
to  a  broker  for  what  it  will  bring;  and  the  broker 
buys  it  with  funds  furnished  by  the  capitalist,  who 
stands  behind  the  curtain  while  the  borrower  pays 
the  broker  for  getting  the  money  he  might  otherwise 
have  obtained  directly  of  the  capitalist  himself.  The 


822  DISTRIBUTION. 

law  has  not  prevented  the  usury,  only  increased  the 
rate.  The  broker  feels  no  responsibility;  for  he  is 
only  an  agent  between  the  parties.  The  capitalist 
has  no  scruples;  for  he  is  not  known  in  the  trans- 
action. Instead  of  this,  the  borrower  and  lender 
should  be  brought  face  to  face,  in  an  open  market, 
where  each  could  be  protected  by  law  in  the  trans- 
action; and  then  a  fair,  unrestricted  competition 
would  assure  the  lowest  rate  of  interest,  obtained 
most  economically. 

But  for  usury  laws,  the  current  rate  of  interest 
would  be  as  well  known  as  the  price  of  stocks  or 
corn  or  wool,  and  would,  like  them,  be  determined 
by  the  laws  of  trade ;  and  men  would  act  as  intelli- 
gently and  as  freely  as  in  the  purchase  of  merchan- 
dise. Freedom  is  as  essential  in  the  disposal  of 
money  as  in  the  intercourse  of  nations. 

(6)  Usury  laws  create  an  injurious  distinction  be- 
tween different  kinds  of  mercantile  paper,  and  thus 
occasion  embarrassment  and  loss  to  borrowers. 

For  example,  the  law  says  in  some  States  that 
only  six  or  seven  per  cent,  interest  shall  be  taken 
by  the  banks.  But  money  may  be  worth  twelve 
per  cent.;  and  there  are  ten  applications  for  it,  at 
that  rate,  to  one  that  can  be  supplied.  What  is  the 
result?  Why,  the  bank  will  make  no  loans  except 
upon  such  paper  as  it  can  charge  with  exchange. 
Exchange  is  legal,  whether  it  is  real  or  fictitious. 
A  and  B  apply  for  discount  at  a  bank  in  Boston. 
A  offers  notes  of  the  most  undoubted  character, 
payable  in  Boston  ;  B  offers  notes  or  drafts  payable 
in  New  York,  and  he  gets  accommodated.  His 
drafts  have  sixty  days  to  run ;  he  is  charged  one 


INTEREST.  323 

per  cent,  exchange,  and  thus  pays  twelve  per  cent, 
interest.  A,  having  only  notes  on  which  no  such 
exchange  can  be  legally  charged,  must  "  go  into  the 
street,"  and  employ  a  broker  to  sell  the  notes  for 
him  at  the  best  rates  he  can. 

(c)  Usury  laws  are  the  principal  cause  of  compul- 
sory deposits,  or  deposits  made  to  secure  large  dis- 
counts. These  are,  as  we  have  shown,  exceedingly 
burdensome  to  the  business  community,  and  most 
dangerous  to  the  currency.  If  the  rate  of  interest, 
as  at  the  Bank  of  England,  was  left  entirely  to  the 
state  of  the  money  market,  these  deposits,  now 
peculiar  to  American  banking,  would  disappear. 

3d.  Interest  will  be  influenced  largely  by  the  safety 
or  hazard  of  capital.  This  will  depend, — 

(a)  Upon  the  moral  character  of  the  people, 
whether  essentially  honest  or  dishonest,  whether 
honorable  or  dishonorable,  whether  industrious, 
frugal,  and  temperate,  or  otherwise. 

(6)  Upon  the  general  thrift  of  the  community; 
for  however  well  disposed  to  pay,  if  decay  and  de- 
cline are  general,  the  hazards  of  capital  must  be 
greatly  increased.  It  must  share  in  the  general 
losses  of  business. 

(c)  Upon  the  justice  and  efficiency  of  the  laws  by 
which  the  rights  of  property  are  secured,  and  the 
obligation  of  contracts  enforced.  This,  as  can 
readily  be  seen,  is  one  of  the  most  important  con- 
siderations in  regard  to  the  safety  of  loans ;  and,  of 
course,  the  rate  of  compensation  in  the  shape  of 
interest. 

4th.  Again,  the  uniformity  of  the  rate  of  interest, 
and  its  general  average,  will  depend,  other  things 


324  DISTRIBUTION. 

equal,  upon  the  soundness  of  the  currency.  If  it 
consists  wholly  of  value, — that  is,  if  the  credit  ele- 
ment constitutes  no  part  of  the  circulating  medium 
or  standard  of  value, — the  rate  of  interest  will  be 
as  uniform  and  as  low  as  the  laws  of  trade  admit. 
The  rate  can  never  be  absolutely  fixed  at  one  point ; 
yet,  where  no  credit  is  used  as  currency,  the  credits 
of  the  country  will  be  so  based  upon  values  that  the 
vacillations  will  be  very  moderate.  They  were  very 
slight  in  Europe  until  within  the  last  thirty  years; 
that  is,  until  the  general  introduction  of  credit  cur- 
rency. 

Under  a  currency  in  which  credit  is  the  principal 
element,  the  fluctuations  in  interest  are  in  propor- 
tion to  the  extent  of  that  element;  because,  as  we 
have  shown,  a  mixed  currency,  whenever  there  is 
any  panic  or  distress  for  money,  withdraws  from  cir- 
culation with  a  rapidity  proportionate  to  its  weak- 
ness, or  want  of  value.  Hence  the  frightful  revul- 
sions we  have  witnessed. 

A  legal  rate  of  interest  should  be  established  by 
law,  in  all  cases  where  the  parties  have  not  them- 
selves agreed  upon  one,  so  that,  in  the  absence  of  all" 
agreement  or  contract,  a  given  rate  may  be  awarded 
This  legal  rate  would  probably  be  the  general  aver- 
age obtained  for  the  use  of  money. 


RENT.  325 


CHAPTER    VII. 


RENT. 


RENT  is  paid  for  the  use  of  land  and  its  append- 
ages, which  together  are  called  "  real  estate.''  The 
question  of  the  rent  of  land  is  of  much  less  practical 
importance  in  the  United  States  than  in  Europe, 
since  it  is  here  generally  held  in  fee  simple  by  those 
who  cultivate  it.  Yet,  as  an  economic  question,  it 
deserves  consideration.  And  there  is  an  especial  in- 
ducement, since  we  certainly  have  in  this  country 
the  best  opportunity  to  investigate,  in  their  simple 
primitive  form,  all  the  phenomena  connected  with 
it.  Constantly  entering  upon  new  lands,  we  have 
exhibited  for  our  observation  the  working-out  of 
problems  which  long  puzzled  the  philosophers  of 
the  old  world. 

1st.  Rent  implies  ownership,  since  no  one  would 
pay  for  the  use  of  that  to  which  all  had  an  equal 
title.  This  may  be  called  the  first  condition. 

2d.  It  implies  society,  so  that  more  than  one  per- 
son shall  desire  the  use  of  the  same  land  or  append- 
ages. If  exchange,  as  M.  Bastiat  says,  "is  civiliza- 
tion," rent  is  society.  This  is  the  second  condition. 

From  our  definition,  it  will  appear  that  rent  is 
paid  (a)  for  land,  (b)  for  whatever  is  added  to  its 
value  or  desirableness.  We  cannot  separate  the  two 
considerations,  nor  would  it  be  of  practical  utility 
if  we  could ;  as,  from  what  we  have  already  en- 

28 


326  DISTRIBUTION. 

deavored  to  show,  value  is  not  derived  from  the  gifts 
of  nature,  but  the  labor  of  man  :  "land,  water,  steam, 
electricity,  and  the  like,  confer  no  value." 

Land  may  be  said  to  be  the  foundation  of  rent; 
and,  since  the  rightfulness  of  appropriating  it  has 
been  disputed,  it  may  be  proper  to  remark  that  we 
deem  it  a  sufficient  answer,  that  appropriation  is 
indispensable  to  the  production  and  accumulation 
of  wealth,  to  the  progress  of  civilization,  and  the 
welfare  of  the  human  race:  therefore  it  is  ri^ht. 

O 

Man,  in  his  original  or  savage  state,  is  a  hunter. 
He  needs  no  appropriation  of  land;  for  he  roams  at 
large  through  the  forest.  He  accumulates  little  or 
nothing ;  and  it  is  of  small  importance  where  he 
builds  his  temporary  cabin. 

Nor  in  the  second  or  nomadic  condition,  when 
man  becomes  a  shepherd,  does  rent  make  its  appear- 
ance. His  business  is  no  longer  mere  destruction, 
but  preser\7ation  and  use.  This  elevates  his  condi- 
tion ;  the  employment  has  a  far  more  ennobling 
effect  upon  character;  higher  faculties  and  better 
feelings  are  developed.  In  the  natural  progress 
of  events,  he  becomes  an  agriculturist.  His  chief 
business  now  is  to  till  the  ground.  How  can  he  do 
this  without  preparation  of  the  soil  from  which  he 
is  to  draw  his  sustenance?  And  why  should  he  do 
this,  if  another  may  at  will  dispossess  him  of  his 
labors  ?  The  land  must  be  divided,  appropriated, 
and  held  by  some  tenure  that  can  be  relied  upon  ; 
and,  when  this  takes  place,  rent  makes  its  appear- 
ance, and  increases  in  intensity  as  man  becomes 
more  and  more  advanced  in  social  condition ;  for 
with  agriculture  come  the  mechanic  arts,  manufac- 


RENT.  327 

tares,  commerce,  villages,  towns,  cities, — civiliza- 
tion. 

We  now  come  to  the  elements  which  enter  into 
the  rental  of  land. 

1st.  Location. — This  grows  out  of  the  social  con- 
dition of  man,  to  which  we  have  alluded.  If  men 
lived  as  isolate  beings,  and  there  were  land  enough 
for  all,  and  the  whole  equally  fertile,  there  would  be 
no  rent;  but,  once  gathered  into  villages  and  com- 
munities, rent  would  make  its  appearance,  although 
there  were  as  much  land  as  all  desired,  and  each  part 
equally  productive. 

This  point  we  shall  endeavor  to  make  plain  by 
an  illustration.  A  colony  of  thirteen  families  settles 
along  the  shore,  where  all  the  land  is  unclaimed, 
and  immigrants  have  only  to  choose  where  and  how 
much  they  will  occupy.  We  will  suppose  the  land 
all  equally  fertile,  agreeable,  and  accessible.  In  point 
of  fact,  there  shall  be  no  natural  difference  between 
one  lot  of  one  hundred  and  sixty  acres  (what  each 
family  desires)  and  another;  absolutely  no  choice 
arising  from  anything  appertaining  to  the  land. 
They  accordingly  lay  out  thirteen  lots  half  a  mile 
square.  This  allotment  and  location  upon  the  shore 
we  represent  as  follows : 


1 

2 

3 

* 

5 

6 

7* 

8 

9 

10 

11 

12 

13 

In  this  arrangement,  it  will  be  seen,  the  lots  com- 
mencing on  the  left  are  numbered  1  to  13.  No.  1 
is,  of  course,  the  middle  lot. 

Now,  all  being  equally  eligible,  the  land  equally 
accessible  and  good,  and  there  being  as  many  lots 


328  DISTRIBUTION. 

as  settlers,  and  each  as  large  as  any  one  desires,  will 
there  be  any  value  to  them?  Yes:  because  all  will 
prefer  No.  7,  for  they  perceive  that  it  is  most  de- 
sirable, inasmuch  as  it  is  central ;  and,  if  public 
buildings  are  erected  for  the  accommodation  of  all 
(school-house,  church,  etc),  they  must  be  placed  on 
that  lot.  If  a  landing-place  is  made,  or  a  warehouse 
put  up,  for  the  commerce  of  the  settlement,  it  must 
be  on  No.  7 ;  for  the  obvious  reason  that  it  is  the 
point  at  which  the  whole  population  can  most 
readily  assemble,  and  it  thus  forms  the  natural 
centre  of  business. 

All  this  is  so  apparent,  that  each  man  prefers  No. 
7;  but  only  one  can  have  it.  What  follows?  It 
must  be  sold  to  the  man  who  will  give  the  most 
for  it.  Some  one  will  give  one  hundred  bushels  of 
wheat,  or  its  equivalent, — six  bushels  rent  per  an- 
num. All  this  does  actually  happen  in  every  case 
of  new  settlement;  not,  indeed,  in  a  manner  always 
so  distinct  and  striking  as  in  the  case  we  have 
supposed,  but  in  principle  as  certain  and  absolute. 

If  this  is  so,  we  have  established  the  fact  that, 
though  all  land  were  equally  fertile,  and  there  were 
enough  for  all,  and  all  equally  desirable  in  every 
other  particular,  yet  that  rent  would  arise  from  the 
social  wants  of  man,  which  make  mere  location  a 
circumstance  affecting  its  value,  and  create  a  rental 
independent  of  all  other  considerations. 

2d.  Difference  of  Fertility. — We  will  suppose  four 
different  tiers  of  land,  of  unequal  fertility.  The 
first  will  yield  forty  bushels  of  corn  ;  the  second, 
with  the  same  labor,  thirty;  the  third,  twenty;  the 
fourth,  ten. 


RENT.  329 

Now,  while  there  was  enough  land  of  the  first  to 
produce  all  the  corn  wanted,  nobody  would  give 
any  rent  for  the  first  tier  on  account  of  its  fertility; 
but  when,  by  the  increase  of  population,  it  became 
necessary  to  cultivate  No.  2,  which  would  only  yield 
thirty,  No.  1  would  command  a  rental  of  ten  bushels, 
because  a  man  might  as  well  give  ten  bushels  rent 
for  No.  1  as  to  cultivate  No  2  without  rent. 

When,  again,  necessity  compelled  the  cultivation 
of  No.  3,  No.  2  would  pay  a  rent  of  ten  bushels, 
and  No.  1  of  twenty  bushels.  And  further,  when 
tier  No.  4  must  be  brought  under  culture  to  pro- 
duce the  quantity  of  corn  needed  for  consumption, 
then,  as  it  would  with  equal  labor  produce  but  ten 
bushels,  No.  1  would  yield  a  rent  of  thirty,  No.  2 
of  twenty,  and  No.  3  of  ten  ;  while  the  last*  or  No. 
4,  would  afford  no  rent. 

3d.  Population. — We  will  further  suppose  that 
from  the  increase  of  population,  more  corn  is  wanted 
than  can  be  raised;  and,  consequently,  importations 
are  made  at  an  increased  price, — equal,  say,  to  fifty 
per  cent.  Now  if,  for  the  sake  of  convenience,  we 
take  the  price  of  corn  to  have  been  originally  one 
dollar  a  bushel,  and  to  have  advanced  to  one  dollar 
and  fifty  cents,  it  will  come  to  pass  that  tier  or 
quality  No.  1  will  have  a  rent  of  $45;  No.  2,  of 
$30;  No.  3,  of  $20;  and  No.  4,  which  now  for  the 
first  time  produces  rent,  of  $5. 

4th.  Application  of  Capital  to  Land. — This  is  done 
in  various  ways, — by  the  use  of  fertilizing  materials, 
drainage,  deep  ploughing,  etc.  For  every  such  ap- 
pliance, wisely  made,  a  rent  is  received,  supposed  to 
be  equivalent  to  the  expenditure  incurred. 

28* 


330  DISTRIBUTION. 

And  here  it  may  be  found  that  the  same  expen- 
diture, applied  to  the  different  qualities  of  land, 
produces  unequal  results.  Five  dollars,  expended 
per  annum  on  No.  1,  may  return  but  a  profit  or  ad- 
ditional rent  of  eight  dollars;  while  the  same  amount, 
applied  to  No.  2,  will  give  seven  dollars;  or  to  No. 
3,  will  give  six  dollars,  etc. 

This  will  cause  a  variation  in  the  relative  rentals 
*of  the  different  qualities  or  tiers  of  land  we  have 
supposed. 

LAND    APPENDAGES. 

We  have,  thus  far,  noticed  only  the  rent  of  land, 
without  reference  to  what  may  be  placed  upon  it 
for  other  purposes  than  direct  production. 

We  now  come  to  speak  of  real  estate,  consisting 
of  dwellings,  stores,  warehouses,  and  the  like. 

When  buildings  are  placed  upon  farms,  they  form 
a  part  of  the  preparations  which  are  indispensable 
to  agriculture;  and,  if  erected  with  suitable  refer- 
ence to  economy,  will  add  to  the  value  of  land  as 
much  as  shall  be  equal  to  their  fair  annual  rent. 
Farming  cannot  be  carried  on  without  buildings ; 
therefore,  so  far  as  buildings  are  absolutely  neces- 
sary, they  will  command  a  rent  as  certainly  as  the 
land  itself.  This  must  be  true;  and  yet  all  know 
that  "improvements,"  as  they  are  called,  in  the 
shape  of  buildings,  seldom  increase  the  value  of 
farms  in  proportion  to  their  cost.  For  example,  if 
the  land  alone  is  worth  three  thousand  dollars,  and 
buildings  are  put  up  costing  two  thousand  dollars, 
the  whole  will  not,  ordinarily,  sell  for  five  thousand 
dollars.  Facts  of  this  sort  are  observed  evervwhere. 


RENT.  331 

Farms  may,  as  a  general  rule,  be  bought,  especially 
in  all  the  older  States,  at  much  less  than  their  cost, 
after  making  all  due  allowances  for  depreciation  of 
buildings,  etc.  We  observe,  first,  that  buildings  are 
not  generally  put  upon  farms  for  the  purpose  of 
selling  or  letting  them.  They  are  almost  invariably 
erected  by  the  owners  of  the  land,  in  order  to  create 
for 'themselves  a  home.  To  make  that  home  pleas- 
ant and  desirable,  a  dwelling  is  erected  according  to* 
the  tastes  of  the  owner  and  his  family,  rather  than 
the  direct  profit  of  the  farm. 

Whenever,  therefore,  such  farming  properties 
must  be  sold,  the  purchaser  will  rarely,  if  ever,  give 
more  than  a  fraction  of  the  original  cost  of  the 
buildings. 

And,  in  the  competition  of  cultivation  in  a  com- 
munity like  the  United  States,  it  is  to  be  remem- 
bered that  its  agriculture  is  a  unit ;  that  the  prod- 
ucts of  the  accessible  and  fertile  prairies  of  the 
West  are  brought  into  the  same  markets  as  those 
of  the  hard  and  sterile  hills  of  New  England.  And 
it  is  also  to  be  taken  into  account,  that  a  farm  in 
Illinois,  for  example,  with  a  productive  power  of 
five  thousand  bushels  of  corn,  will  probably  not 
have  upon  it  buildings  worth  more  than  one  thou- 
sand dollars ;  while  on  many  Eastern  farms,  of  a 
productive  power  of  but  two  thousand  bushels,  the 
buildings  may  have  cost  three  thousand  dollars. 
Now,  as  these  farms  are,  in  fact," competing  in  the 
same  general  markets,  it  is  clear  that  the  ex- 
tra expenditures  upon  Eastern  farms  can  pay  but 
little,  if  any,  rental,  though  they  may  be  very  pleas- 
ant to  the  occupant. 


332  DISTRIBUTION. 

It  is  on  the  same  principle  that  the  amount  ex- 
pended in  clearings,  building  walls  around  farms, 
and  the  like,  do  not,  in -the  aggregate,  return  much 
rent  or  income,  compared  with  their  cost.  They 
become,  in  the  progress  of  years,  to  a  considerable 
extent,  like  the  gifts  of  nature,  gratuitous.  This  is 
true  of  all  countries,  at  all  times. 

In  cities,  where  the  value  of  real  estate  consists 
"principally  of  buildings,  and  improvements  made 
upon  the  land,  we  find  that  the  land  itself  feels  the 
operation  of  the  first  cause  of  rent  or  value,  viz., 
location,  far  more  intensely  than  anywhere  else.  An 
acre  of  land,  once  of  the  value  of  fifty  dollars  for 
agriculture,  becomes  worth  five  hundred  thousand 
dollars  for  city  purposes. 

The  absence  of  all  restrictions  upon  the  owner- 
ship and  transfer  of  landed  property  and  real  estate, 
of  all  entails  and  mortmain  holdings,  makes  the 
question  of  rent  one  of  small  practical  importance. 
Where  owning  is  the  rule,  and  hiring  the  exception, 
rents  regulate  themselves;  or,  in  other  words,  are 
governed  entirely  by  the  operation  of  the  laws  of 
value.  They  advance  or  recede  with  trade  and 
population. 


TAXATION.  333 


CHAPTE41 

TAXATION.  —  PRINCIPLES    OF    TAXATION. 

SINCE  government,  or  social  organization,  is  among 
the  wants  of  man,  as  truly  as  food  or  clothing,  we 
must  recognize  it  in  the  science  of  political  economy, 
and  provide  for  it.  Government  implies  functionaries 
and  expenditures.  How  shall  these  be  maintained? 
Evidently  by  the  contributions  of  all,  for  all  are  in- 
terested. Government  may,  therefore,  rightfully 
claim  a  share  of  all  that  labor  and  capital  have 
created.  The  aggregate  of  all  sums  collected  is 
called  REVENUE;  the  system  by  which  it  is  collected 
is  called  TAXATION. 

Although  the  single  object  of  taxation  is  to  ob- 
tain a  given  amount  of  wealth  (generally  in  the  form 
of  money),  yet  the  modes  by  which  that  object  may 
be  secured  are  various. 

In  ancient  times,  taxation  was  often  imposed  by 
the  arbitrary  fiat  of  the  ruler,  with  little  or  no  refer- 
ence to  equity,  or  its  effect  on  the  prosperity  and 
happiness  of  the  people  ;  but,  in  modern  civilization, 
it  hns  come  to  be  regarded  as  altogether  the  most 
difficult  and  delicate  task  government  is  called  upon 
to  perform. 

The  question  of  taxation,  in  its  various  bearings, 
is  now  made  the  subject  of  examination  and  discus- 
sion in  all  legislative  bodies;  and  taxes  are  imposed, 
in  all  constitutional  governments,  not  at  the  caprice 
of  the  ruler,  but  by  the  representatives  of  the  people. 


334  DISTRIBUTION. 

If,  then,  the  property  of  the  citizen  must  be  taken 
to  meet  the  exigencies  of  government,  it  becomes 
highly  important  that  tjiose  from  whom  it  is  taken 
should  feel  that  it  is  equitably  done.  Nothing  in 
relation  to  all  the  acts  of  government  is  more  to  be 
desired  than  that  its  mode  of  raising  a  revenue 
should  be  so  wisely  and  economically  arranged,  so 
manifestly  just  and  equal,  and  so  well  understood 
by  all,  that  no  opposition  to  its  demands  shall  arise 
from  a  sense  of  oppression. 

In  the  distribution  of  wealth,  as  has  been  before 
stated,  government  makes  a  peremptory  claim  to  so 
much  as  its  necessities,  real  or  supposed,  may  re- 
quire. 

This  claim  is  not  only  peremptory,  but  prior  to 
every  other  claim.  The  laborer  must  contribute  a 
part  of  his  wages;  the  business  man  of  his  profits; 
and  the  capitalist,  of  his  interest,  or  rent.  Every 
man  knows,  or  should  know,  that  when  he  creates 
any  kind  of  wealth,  a  share  of  it  belongs  to  govern- 
ment. He,  in  fact,  creates  a  fund  out  of  which 
government  is  to  be  supported. 

The  paramount  question,  in  regard  to  taxation,  is, 
On  what  principles  shall  it  be  founded?  Adam 
Smith,  in  his  u  Wealth  of  Nations,"  written  almost 
a  century  ago,  laid  down  four  maxims,  or  principles, 
which  have  been  so  generally  concurred  in  from  that 
day  to  this,  that,  as  J.  Stuart  Mill  says,  "they  have 
become  classic." 

I.  "The  subjects  of  every  state  ought  to  contribute  to  the  sup- 
port of  the  government,  as  nearly  as  possible,  in  proportion  to 
their  respective  abilities;  that  is,  in  proportion  to  the  revenue 
they  enjoy  under  the  protection  of  the  state.  In  the  observation 


TAXATION.  335 

or  neglect  of  this  maxim  consists  what  is  called  the  equality  or 
inequality  of  taxation." 

We  accept  this  proposition,  and  our  first  inquiry 
is,  What  is  meant  by  "subjects"?  We  answer, 
Every  inhabitant,  old  or  young,  male  or  female. 
Women?  Certainly:  if  they  have  a  revenue  or  in- 
come, they  are  as  justly  bound  to  contribute  to  the 
government  as  men,  and  in  the  same  proportion. 
Many  women  have  large  wealth:  why  should  it  go 
untaxed?  Children?  There  are  some  such  who 
are  millionaires:  why  should  they  be  exempt? 
Idiots,  lunatics,  cripples?  Yes,  if  they  have  "rev- 
enues." Many  such  persons  have  large  estates, 
which  should  contribute  to  the  public  treasury.  It 
is  not  the  ability  to  hear  or  see  or  walk  that  is  taxed, 
but  the  income,  or  "revenue." 

We  next  notice  the  condition  mentioned,  "as 
nearly  as  possible."  This  implies  that  it  may  not 
be  practicable  to  secure  perfect  equality;  indeed, 
we  know  it  is  not,  but  sucb  should  be  the  aim  of 
government. 

II.  "The  tax  which  each  individual  is  bound  to  pay  ought  to 
be  certain,  and  not  arbitrary.  The  time  of  payment,  the  manner 
Df  payment,  the  quantity  to  be  paid,  ought  to  be  clear  and  plain  to 
the  contributor,  and  every  other  person." 

(a)  "Certain,  arid  not  arbitrary."  By  this,  Dr. 
Smith  evidently  meant  tbat  the  taxes  should  be 
assessed  by  competent  authority,  and  upon  fixed 
and  well-known  principles. 

(6)  The  time  of  payment  should  be  "clear  and 
plain."  The  citizen  should  know  when  he  pays;  be 
conscious  of  the  fact  that  he  is  paying  the  govern- 
ment a  certain  sum  at  the  time  he  actually  does  it. 


336  DISTRIBUTION. 

(c)  "The  manner  and  the  quantity  plain."     This 
for  the  reasons  just  stated.     He  certainly  ought  to 
know  in  what  manner  he  pays,  and  how  much. 

(d)  Should    be  known   "to  the  contributor,  and 
everybody  else."     In  the  method  of  taxation,  the 
people  are  joint  partners:  what  one  does  not  pay, 
another  must ;  hence  the    right  of  every   man   to 
know,  not  on  I}7  what  he  pays  himself,  but  what  his 
neighbor    pays.      Otherwise,   how    can    he    judge 
whether  he  is  overtaxed  or  not? 

There  is  nothing,  therefore,  inquisitorial,  or  of 
the  character  of  espionage,  in  any  necessary  inquiries 
in  regard  to  individual  property  or  income  ;  because 
it  is  what  every  tax-payer  has  a  right  to  know,  it  is 
that  without  which  a  just  distribution  of  the  public 
burdens  cannot  be  secured. 

It  is  on  this  account  that  the  publication  of  tax- 
lists  is  a  duty  on  the  part  of  the  taxing  power. 
Then,  if  any  property  is  omitted  by  accident  or  de- 
sign, it  will  probably  be  found  out;  for,  being  a 
copartner,  each  man  is  interested  in  the  taxes  of 
every  other,  and  will  or  ought  to  give  notice  of  any 
omission  or  incorrect  valuation. 

III.  "Every  tax  should  be  levied  at  the  time,  or  in  the  man- 
ner, which  is  most  likely  to  be  convenient  to  the  contributor  to 
pay  it." 

As,  for  example,  when  the  harvest  has  been 
secured,  and  is  ready  for  market ;  when  the  fisher- 
man returns  with  his  "fare,"  etc.  This,  though  not 
a  very  important  consideration,  will  readily  be  ad- 
mitted as  proper. 


TAXATION.  337 

IV.  "Every  tax  ought  to  be  so  contrived  as  to  take  out  and 
keep  out  of  the  pockets  of  the  people  as  little  as  possible,  over 
and  above  what  it  brings  into  the  treasury  of  the  state." 

Although' the  soundness  of  this  principle  would 
seem  indisputable,  and  will  doubtless  be  theoreti- 
cally admitted  by  all,  yet  Dr.  Smith  proceeds  to 
enumerate  several  modes  in  which  the  opposite 
result  may  be  brought  about. 

First.  By  levying  the  tax  in  such  a  manner  that  a 
great  many  officers  will  be  required  for  its  collection, 
who  will  consume  a  great  part  of  the  produce  of  the 
tax.  This  will  depend  in  great  measure  on  the  ma- 
chinery employed  in  collecting  the  public  imposts. 

Second.  By  diverting  a  portion  of  the  labor  of  a 
community  from  a  more  to  a  less  profitable  employ- 
ment. For  example,  so  heavy  a  tax  might  be  laid 
on  carriages  as  to  reduce  their  use  or  consumption 
to  such  an  extent  that  the  manufacturer  might  be 
compelled  to  go  into  some  other  business  less  pro- 
ductive. This  has  often  been  done  by  unwise  legis- 
lation. 

Third.  By  attaching  such  heavy  duties  as  to  occa- 
sion smuggling,  and  thus  create  a  multitude  of 
officers  to  guard  the  revenue. 

Fourth.  By  subjecting  the  people  to  frequent  and 
inquisitorial  visits,  and  interruptions  in  the  pursuit 
of  business  and  in  their  domestic  affairs,  thus  caus- 
ing annoyance  and  dissatisfaction. 

We  now  add  still  another  principle,  which,  though 
not  among  those  laid  down  by  Dr.  Smith,  has  been 
adopted  in  every  county  having  any  considerable 
taxation : 

29 


338  DISTRIBUTION. 

V.  The  heaviest  taxes  should  be  imposed  on  those  commodities, 
the  consumption  of  which  is  especially  prejudicial  to  the  interests 
of  the  people. 

Having  stated  the  maxims  or  principles  which 
should  govern  the  imposition  of  taxes,  we  now 
come  to  consider  the  different  forms  of  taxation 
which  have  heen  adopted,  and,  to  a  great  extent, 
are  still  in  use,  by  the  different  governments  of  the 
world,  in  order  to  ascertain  in  how  far  they  conform 
to  principles  universally  admitted  as  correct. 


FORMS   OF   AMERICAN    TAXATION. 

Preliminary  to  an  examination  of  the  different 
modes  of  taxation,  it  may  he  proper  to  say  that 
there  are,  in  the  United  States,  two  general  systems; 
viz.,  by  national  and  by  State  authority.  The  na- 
tional government  has  a  mixed  system,  imposing 
taxes  in  every  form,  direct  and  indirect,  except  upon 
the  poll.  The  State  governments  generally  rely 
upon  direct  taxation  ;  and  the  poll-tax  is  often  one 
of  the  forms  adopted. 

Under  State  authority,  counties,  cities,  towns,  and 
school-districts  impose  taxes ;  so,  also,  parishes  and 
religious  corporations:  but  the  latter,  generally, 
only  on  voluntary  membership. 

Taxes  may  first  be  divided  into  two  kinds, — direct 
and  indirect.  A  direct  tax  is  demanded  of  the  per- 
son who  it  is  intended  shall  pay  it.  Indirect  taxes 
are  demanded  from  one  person,  in  the  expectation 
that  he  will  indemnify  himself  at  the  expense  of 
others.  Such  are  customs  and  excise. 

In   our  further  examination  of  the    subject,  we 


NATIONAL    TAXATION.  339 

shall  refer  to  the  national  taxation  of  the  United 
States,  and  the  State  taxation  of  Massachusetts ; 
selecting  the  latter  State  only  for  being  the  most 
convenient,  and  as  representing  that  of  the  indi- 
vidual States  generally  with  considerable  exactness. 


CHAPTER    IX. 

NATIONAL    TAXATION.— I.    CUSTOMS. 

THESE  are  taxes  upon  importations,  and  collected 
through  the  custom-houses.  Government  establishes 
a  tariff;  that  is,  a  list  of  duties  upon  such  articles 
as  it  deems  best:  these  are  paid  by  the  importer 
before  he  can  get  possession  of  his  goods. 

Duties  are  generally  of  two  kinds, — specific  and 
ad-valorem.  Specific  duties  are  imposed  by  the  pound, 
yard,  gallon,  etc.  Ad- valor  em  duties,  as  the  term  im- 
ports, are  charged  upon  the  value  of  the  goods,  as 
twenty  per  cent,  upon  an  invoice  of  silks,  hardware, 
sugar,  etc. 

In  some  of  the  American  tariffs,  the  specific  prin- 
ciple has  predominated;  in  others,  the  ad-valorem. 
There  has  always  been  a  struggle  when  the  tariff 
was  to  be  changed;  those  desiring  protection  being 
in  favor  of  specific,  those  of  the  opposite  views  con- 
tending generally  for  ad  valorem  duties.  Hence  much 
conflicting  legislation. 

There  are  difficulties  attending  both.  If  specific 
duties  are  laid,  they  operate  with  great  inequality. 


340  DISTRIBUTION. 

For  example,  suppose  a  duty  of  twenty-five  cents 
per  pound  upon  tea.  This  would  be  equal  to  a 
taxation  of  one  hundred  per  cent,  on  that  which 
cost,  originally,  twenty-five  cents,  which  the  poor 
man  must  consume;  while  the  rich,  who  would  pur- 
chase tea  that  cost  seventy-five  cents,  would  pay  but 
one-third  as  much  per  cent,  as  the  former. 

In  regard  to  ad-calorem  duties,  the  practical  diffi- 
culty has  been,  when*the  rates  were  very  high,  to 
prevent  fraudulent  invoices.  For  example,  the  im- 
porter must  present  his  original  invoice  at  the 
custom-house,  and  make  oath  to  its  correctness.  If 
dishonest,  he  may,  by  connivance  with  the  shipper, 
furnish  false  papers,  showing  the  cost  to  be  much 
less  than  it  really  was. 

Of  all  modes  of  raising  a  revenue,  that  by  customs 
is  confessedly  the  most  effective,  and  the  most 
readily  accomplished;  and  its  great  importance,  as 
one  of  the  chief  sources  of  national  revenue,  de- 
mands that  we  give  it  a  careful  consideration. 

1.  The  first  principle  we  laid  down  was  "that  all 
should  contribute,  as  nearly  as  possible,  in  propor- 
tion to  their  respective  abilities." 

As  all  duties  are  laid  upon  articles  of  general 
consumption,  it  will  at  once  be  seen  that  such  taxa- 
tion cannot  have  an  equal  bearing,  because  men  are 
thus  taxed  in  proportion  to  what  they  consume,  not 
in  proportion  to  their  wealth.  The  poor  man,  with 
a  large  family,  may  pay  more  than  a  millionaire. 
Men  are  taxed  in  this  way  according  to  the  mouths 
they  have  to  feed,  and  the  bodies  they  have  to  clothe. 

2.  In  the  second  place,  we  inquire,  Is  "the  time 
and    manner  plain  to  the   person   who   pays"  this 


NATIONAL   TAXATION.  341 

indirect  tax?  The  farmer  who  purchases  a  car- 
riage,— is  he  aware  that  he  is  paying  a  government 
tax  by  so  doing  ?  If  so,  does  he  know  how  much 
he  is  paying?  Does  he  understand  that  all  the 
materials  have  paid  duties  to  government ;  that  the 
linings,  trimmings,  and  ornaments,  the  paints  and 
varnish,  and  the  tools  with  which  it  was  made,  have 
all  been  taxed ;  and  that  he  is  to  pay  the  sum  total 
with  customary  profits  on  the  whole  ?  *  Even  if  so, 
can  he  or  any  one  else  easily  compute  the  amount 
of  taxation  which  enters  into  the  carriage  ?  So  of 
all  commodities  which  have  passed  through  the  cus- 
tom-house: people  seldom  realize  when  or  how 
much  they  are  taxed.  Then  the  second  principle 
we  have  laid  down  is  violated. 

3.  But  we  shall  not  have  a  full  view  of  the  opera- 
tion of  duties  on  foreign  merchandise,  unless  we 
take  into  consideration  the  fact  that  they  raise  the 
price  of  the  home  product,  if  there  is  one,  to  an 
equal  degree  with  the  foreign  article,  and,  in  that 
way,  largely  increase  the  burdens  of  the  people, 
without  adding  to  the  public  revenue.  Suppose, 
for  example,  that  the  whole  of  a  given  commodity 
consumed  in  the  country  is  20  millions,  of  which 
5  millions  are  imported,  and  the  balance  produced 
at  home.  Suppose,  further,  that  the  duty  upon  the 
imported  article  is  forty  per  cent.,  equal  in  the 
aggregate  to  2  million  dollars.  The  home  pro- 
duct must  of  course  be  raised  in  price  to  the  extent 
of  the  duty  on  the  foreign  article,  and  the  amount 
being  15  millions,  is  raised  forty  per  cent.  To 
ascertain  the  net  amount  of  the  latter,  we  take  a 
sum  to  which,  if  forty  per  cent,  be  added,  we  find 

29* 


342  DISTRIBUTION. 

the  total  to  be  15  millions.  That  sum  is  $10,714,286. 
Deduct  this  last  from  $15,000,000,  and  we  have 
$4,285,714  as  the  difference,  or  enhanced  price,  the 
people  have  to  pay  on  the  home  product ;  and  the 
matter  stands  thus: 

Duties  upon  imported  articles $2,000,000 

Enhanced  cost  of  the  home  article 4,285,714 


$6,285,714 
Of  this  amount  the  government  gets 2,000,000 


And  the  tax  upon  consumers $4,285,000 

That  is,  the  latter  have  paid  three  times  as  much 
as  the  public  treasury  has  received. 

Practically,  under  our  present  tariff  (1871),  the 
people  pay  in  some  instances  a  much  greater  differ- 
ence than  here  presented. 

It  is  apparent,  from  this  illustration,  that  the  real 
taxation  of  a  people  will  depend  very  much  upon 
the  proportion  of  duties  which,  designedly  or  not, 
are  positively  protective.  On  the  other  hand,  if  we 
suppose  that  the  forty  per  cent,  duty  were  laid 
upon  tea  or  any  other  article  not  produced  at  home, 
the  government  would  get  the  whole  amount  paid, 
the  people  saving  upon  every  20  millions  consumed 
more  than  four  million  dollars.  \Ve  omit  here  in 
both  cases  all  reference  to  profits  paid  on  duties. 

Such  is  the  wide  difference  betwen  duties  imposed 
for  revenue  and  those  laid  for  the  advantage  of  home 
productions. 


NATIONAL    TAXATION.  ,343 


CUSTOMS    AN    EXPENSIVE    MODE    OF    TAXATION. 

But,  setting  aside  all  consideration  of  the  addi- 
tional burden  of  taxation  occasioned  by  protection, 
as  just  illustrated,  we  find  this  system  is  entirely  at 
variance  with  our  fourth  maxim,  which  was  "that 
no  more  should  be  taken  or  kept  out  of  the  pockets  of  the 
people  than  absolutely  necessary."  This  will  be  seen  by 
the  following  illustration: 

The  whole  amount  of  dutiable  merchandise  con- 
sumed in  the  financial  year  1871  was  $518,759,518, 
upon  which  the  duties  were  $202,446,473.  Upon 
these  duties  the  importers  charged  their  profits  as 
much  as  upon  the  original  cost,  also  the  jobbers  and 
retailers.  The  cost  of  collection  we  estimate  at  six 
per  cent.;  though  including  all  salaries,  charges,  and 
interest  in  government  investments,  in  custom- 
houses, etc.,  the  expense  is  doubtless  much  greater. 
The  matter  will  then  stand  thus: 

Whole  amount  of  duties $202,446,473 

Importers'  profits  12£  per  cent 25,305,810 


227,752,283 
Jobbers'  profits  7£  per  cent 17,081,421 


244,833,704 
Retailers'  profits  15  per  cent 36,875,051 


Paid  by  consumers 281,708,755 

Received  by  government 202,446,473 


Extra  charge  on  the  people $79,262,282 

Or  thirty-nine  per  cent,  over  the  gross  amount  re- 
ceived by  the  national  treasury,  and  forty-five  per 
cent,  over  the  net  amount  after  deducting  expenses 


DISTRIBUTION. 

of  collection.     The  estimate  of  profits  is  at  a  low 
figure,  less,  probably,  than  the  actual  fact. 

In  regard  to  customs  duties,  then,  we  cannot  but 
conclude  that,  while  they  are  a  convenient  and  pro- 
litic  source  of  revenue,  they  are  very  unequal  and 
expensive,  and  little  in  accordance  with  the  princi- 
ples of  justice  and  equality. 

BOUNTIES. 

At  this  point  it  may  be  most  proper  to  speak  of 
the  effect  of  bounties.  If  a  home  product  is  to  be  en- 
couraged by  government,  it  is  desirable  that  it  should 
be  done  as  economically  as  possible,  or  in  such  a 
manner  as  to  impose  the  least  taxation  and  loss  upon 
the  public,  while  it  shall  be  as  effective  as  possible 
in  securing  the  object.  It  should  therefore  be  accom- 
plished by  direct  bounties,  by  paying  so  many  dol- 
lars per  ton  on  all  ships  built  in  the  country;  so 
many  dollars  per  ton  on  all  iron  produced  at  home, 
etc.  By  this  arrangement  the  people  would  pay  only 
the  net  amount  of  the  actual  contribution,  while  in 
the  form  of  duties  it  has  been  shown  that  they  may 
and  often  do  pay  three  or  four  times  as  much. 

Bounties,  as  a  means  of  protection,  have  been  but 
little  resorted  to  by  governments.  The  reason  is 
obvious.  The  evident  injustice  of  giving  to  one 
class  of  men  a  premium  upon  their  productions,  in 
order  that  they  may  be  encouraged  in  a  branch  of 
industry  that  cannot  live  without  contributions  from 
the  public  treasury,  is  so  apparent,  and  evidently  un- 
reasonable and  unwise,  that  the  people  of  no  coun- 
try would  long  tolerate  it.  It  is,  therefore,  vastly 


NATIONAL    TAXATION.  345 

more  feasible  to  give  protection  by  duties  on  the 
foreign  article,  although  far  more  wasteful  and 
onerous. 

EXCISE. 

Excise  are  the  opposite  of  custom-house  duties, 
being  laid  wholly  upon  articles  of  domestic  produc- 
tion, and  paid  first  by  the  producer ;  and,  after  the 
articles  have  passed  through  the  hands  of  the  mer- 
chants, with  their  profits  added,  the  sum  total  is 
paid  by  the  consumers. 

This  mode  of  taxation  is  obnoxious  to  somewhat 
the  same  objections  that  may  be  made  to  customs. 
Excise  is  unequal,  because  falling  on  rich  and  poor 
alike;  not  in  proportion  to  their  wealth,  but  what 
they  consume.  The  merchants'  profits  are  not  quite 
so  large  on  these  as  on  custom  duties,  because  home 
products  do  not  ordinarily  pass  through  as  many 
hands  as  foreign  merchandise.  The  expense  of  col- 
lection, though  only  perhaps  about  half  as  great,  is 
still  a  heavy  charge  upon  the  treasury.  It  is,  not- 
withstanding, a  very  productive  source  of  revenue, 
and  must  be  resorted  to  by  governments  heavily  in- 
debted. Domestic  manufacturers  are  not  injured 
by  excise  duties,  unless  they  so  increase  the  cost  of 
their  commodities  as  to  expose  them  to  foreign  com* 
petition.  Profits  upon  such  duties  are  charged  upon 
commodities  as  a  part  of  the  general  expense  of 
their  production. 


346  DISTRIBUTION. 


TAXES    ON   DISADVANTAGEOUS    CONSUMPTION. 

The  principle  has  everywhere  been  acted  upon  by 
governments  that  heavy  taxes  are  to  be  laid  on  com- 
modities "the  consumption  of  which  is  especially 
prejudicial  to  the  interests  of  the  people."  This  is 
in  accordance  with  our  fifth  maxim. 

There  are  two  strong  and  sensible  arguments  in 
favor  of  this  kind  of  taxation.  One  is  that  if  it 
should  cause  a  falling-off  in  the  consumption  of  the 
articles  so  taxed,  no  detriment  would  come  to  indi- 
viduals or  the  public ;  but,  on  the  other  hand,  their 
moral  and  social  condition  would  be  promoted,  and 
the  power  of  production  increased. 

The  other  consideration  is,  that  all  those  who 
choose  to  abstain,  as  they  can  do  without  injury, 
from  the  specially  taxed  articles,  will  avoid  the  pay- 
ment of  the  tax  altogether.  Such  taxes  are  volun- 
tarily rassumed  by  those  who  pay  them.  This  kind 
of  taxation  is  found  to  be  far  more  productive,  in 
proportion,  than  any  other,  and  consumption  is  less 
affected  by  heavy  imposts. 

The  amount  raised  from  liquors  and  tobacco  in 
Great  Britain  for  the  year  ending  March  31,  1871, 
was  as  follows : 


Spirits,  customa £4,419,390 

Tobacco       " 6,613,608 

Wine           "    .     • 1,584,177 

Malt,  excise 6,978,370 

Spirits,    «         .     .     . 11,463,899 


£31,059,504 

equal  to  over  $155,000,000. 


NATIONAL   TAXATION.  847 

To  this  may  be  added  a  large  part  of  the  amount 
received  for  licenses,  £3,728,7t>9,  or  $18,500,000. 

The  amount  raised  in  the  United  States  in  1871 
was: 

From  spirits $46,281,848.00 

From  tobacco 33,578,907.18 

Fermented  liquors 7,389,501  82 

Total $87,250,257.10 

The  British  duty  on  spirits  is  ten  shillings,  or 
$2.50,  per  gallon,  that  of  the  United  States,  50  cents. 

When  the  system  of  war  taxation  was  inaugu- 
rated, $2  per  gallon  was  laid  upon  whisky.  This 
was  a  very  unwise  procedure.  Had  only  50  cents 
been  imposed  at  first,  there  would  have  been  but 
little  illicit  distilling,  and  the  government  would 
have  collected  its  dues.  Having  done  this,  the  tax 
might  have  been  increased  ten  per  cent,  per  annum 
until  it  rose  to  one  dollar  or  one  dollar  and  fifty 
cents  per  gallon.  One-half  of  the  necessary  revenue 
of  the  nation  might,  and  for  the  good  of  the  people 
ought,  to  be  raised  from  this  source  alone, — say  150 
millions  at  least. 

STAMPS. 

There  is  still  another  mode  of  supplying  the  treas- 
ury, viz.,  by  the  sale  of  stamps.  This  is  an  impor- 
tant branch  of  the  public  revenue  in  all  highly-taxed 
communities.  Stamps  are  required  upon  all  letters, 
newspapers,  and  other  matter  carried  through  the 
mails;  upon  all  bills  of  merchandise  and  bills  of 
lading;  upon  legal  instruments  of  every  name  and 
nature ;  upon  patent  medicines,  etc. 


348  DISTRIBUTION. 

This  is  cheap  and  efficient,  and  as  desirable  as 
any  form  of  indirect  taxation.  Of  course  it  bears  un- 
equally upon  different  classes,  and  is  more  or  less 
vexatious,  particularly  when  first  introduced ;  but 
habit  will,  after  awhile,  reconcile  the  people  to  it, 
and  it  is  as  little  likely  to  be  resisted  or  evaded  as 
any  other  form  of  exaction.  It  is  also  collected  with 
very  little  expense,  as  no  functionaries  are  necessary. 
It  should  therefore  be  carried  out  as  far  as  practi- 
cable. The  British  government  raises  a  large  sum 
in  this  way ;  eight  millions  sterling  are  received  for 
stamps.  The  United  States  treasury  received,  for  the 
year  ending  June  30,  1870,  the  sum  of  $16,544,043. 

LICENSES,    OR   SPECIAL   TAXES. 

These  are  granted  by  both  national  and  State  au- 
thority, for  a  great  variety  of  purposes.  It  is  a 
more  economical  and  convenient  mode  of  raising  a 
revenue  than  by  excise  on  manufactures,  etc.,  re- 
quiring only  annual  renewal.  There  is  also  less  op- 
portunity for  fraud  and  evasion.  It  is  therefore  a 
very  desirable  form  of  taxation ;  and  the  United 
States  government  has  already  availed  itself  of  this 
mode  of  raising  revenue,  to  the  extent  of  $9,620,960 
for  the  financial  year  1870,  and  this  sum  may  doubt- 
less be  greatly  increased  in  the  future. 


NATIONAL   TAXATION.  349 


CHAPTER  X. 

NATIONAL   TAXATION   (continued). — INCOME    TAX. 

THIS  tax  is  in  perfect  accordance  with  the  first 
maxim  laid  down  by  Adam  Smith,  that  "  every  man 
should  be  taxed  according  to  the  revenue  he  derives 
under  the  state,"  and  also  consistent  with  every 
other  principle  we  have  stated.  It  is  "  clear  and 
plain"  to  the  contributor  and  every  other  person. 
The  income-tax  payer  knows  when  and  how  much 
he  pays ;  and  it  can  be  collected  conveniently  and 
economically. 

This  kind  of  tax  was  established  in  England  in 
1798,  during  the  wars  with  Napoleon,  but  was  abol- 
ished soon  after  the  close  of  that  struggle.  About 
1842,  however,  the  government,  finding  its  revenues 
fall  short  of  the  expenditures,  restored  the  tax ;  and 
it  has  been  continued  to  the  present  time. 

This  tax  was  first  collected  in  the  United  States  in 
1863,  and  amounted  to  nearly  three  millions;  in  1864, 
to  20  millions;  in  1865, to  32  millions;  in  1866,  to 
72  millions;  in  1867,  to  66  millions;  in  1868,  to  41 
millions;  in  1869,  to  34  millions;  in  1870  to  37  mil- 
lions. 

The  above  included  the  income  tax  upon  banks, 
railroads,  insurance  companies,  etc.  The  tax  upon 
personal  incomes  over  1000  dollars  yielded,  in  1868, 
32  millions,  1869,  25  millions;  in  1870,27  millions. 

30 


350  DISTRIBUTION. 

The  amount  exempted  was  raised  from  1000  to  2000 
dollars,  and  the. tax  has  fallen  off  largely,  and  will 
probably  be  allowed  to  terminate  with  the  year  1872, 
as  it  will  expire  at  that  time. 

Yet  of  all  modes  of  taxation,  this  is  the  most  just 
and  equitable.  Every  man  can  afford  to  pay  accord- 
ing to  his  income,  and  ought  to  do  so.  There  is  no 
other  perfect  standard  of  taxation  ;  none  other  which 
does  not  inflict  more  or  less  hardship  and  injustice. 

The  tax  comes  upon  the  annual  private  revenue 
of  each  year,  out  of  which  the  government  should 
receive  its  share  for  the  annual  revenue  of  the  state. 
If  the  private  revenue  is  increased,  so  should  be  the 
contribution  to  the  public  revenue;  if  the  former  is 
diminished,  the  latter  should  be  also.  This  is  fair 
and  just.  Were  it  to  supersede  all  other  forms  of 
taxation,  perfect  equality  would  be  established; 
property  and  labor  would  bear  each  its  just  share  of 
the  public  burdens.  To  do  this,  it  would  be  neces- 
sary to  ascertain  the  income  of  every  man  ;  of  every 
laborer,  whether  his  wages  amounted  to  one  hun- 
dred or  one  thousand  dollars  a  year;  of  ever/  j  ro- 
fessional  man  ;  of  every  operative,  male  or  female  ; 
every  capitalist,  banker,  merchant,  and  mechanic. 
Upon  the  gross  income,  thus  ascertained,  the  general 
ttx  should  be  levied,  pro  rata.  In  this  way  each 
member  of  the  community  would  be  made  to  pay 
his  just  proportion,  and,  of  course,  would  be  obliged 
to  save  in  his  expenditures  to  that  amount. 

The  objection  to  this  form  of  taxation  is  the  diffi- 
culty of  ascertaining  what  a  person's  income  actu- 
ally is.  In  the  first  place,  it  is  said  that  many  do  not 
know  their  affairs  so  as  to  be  able  to  state  their  true 


NATIONAL   TAXATION.  351 

income.  There  is  doubtless  much  of  truth  in  this; 
but  the  very  fact  that  such  a  tax  is  certain  to  be  en- 
forced every  year  will,  in  a  short  time,  remove  this 
difficulty  to  a  considerable  extent,  because  men  will 
be  compelled  so  to  keep  their  accounts  as  to  know 
what  they  gain  or  lose.  The  operation  of  the  law  in 
this  respect,  therefore,  is  favorable  to  private  inter- 
est;  since  the  more  intelligent  every  man  is  in  re- 
gard to  his  affairs,  the  better  for  him.  Such,  we 
believe,  has  been  the  operation  of  the  income  tax  in 
England. 

Secondly.  It  is  said  that  some  men  will  be  dishonest 
in  their  disclosures  and  statements,  and  therefore  a 
correct  result  cannot  be  reached. 

That  many  men  are  dishonest  there  can  be  no 
doubt;  but,  when  the  law  taxing  incomes  is  regu- 
larly enforced  from  year  to  year,  the  difficulty  of 
concealment,  on  the  part  of  the  tax-payer,  is  con- 
stantly increasing.  His  neighbors  and  competitors 
in  business  have  an  eye  upon  him,  if  they  believe 
he  is  making  false  statements,  and  he  cannot  long 
escape  detection.  Besides,  as  a  man  may  be  put 
under  oath  (and,  we  think,  ought  always  to  be),  the 
crime  of  perjury  must  be  committed  with  every  mis- 
representation of  his  affairs.  The  immense  differ- 
ence between  the  reported  incomes  of  the  United 
States  in  1864  and  those  of  1863,  even  after  allow- 
ing for  the  general  rise  of  prices,  serves  to  give  au 
idea  of  the  advance  that  will  naturally  be  made  in 
the  application  of  the  income  tax. 

The  third  objection  made  is  that  men  do  not 
always  like  to  have  their  incomes  known.  But  why 
should  they  not  ?  We  have  already  said  that,  in  the 


352  DISTRIBUTION. 

matter  of  taxation,  all  are  copartners,  having  a  pro- 
rata  interest.  What  one  does  not  pay,  others  must. 
All,  therefore,  may  rightfully  demand  such  infor- 
mation as  shall  furnish  the  means  of  assessing  a  cor- 
rect tax.  There  is  certainly  nothing  unreasonable 
111  this. 

Estimated  Income. — But  it  may  be  said  that  the 
income-tax  principle  would  not  work  well  in  some 
communities,  because  a  considerable  share  of  its 
wealth  produces  no  income,  and  therefore  would  go 
untaxed  ;  that  this  is  especially  so  in  the  new  States, 
where  vast  quantities  of  land  are  held  which  yield 
no  rent  or  income  whatever. 

But  this  is  a  mistaken  view  of  the  matter.  If 
these  lands  are  appreciating  from  year  to  year, — and, 
as  a  general  fact,  owing  to  the  increase  of  popula- 
tion, they  are, — the  income  from  them  is  as  real  as 
any  other;  but  it  is  a  deferred  income,  which  is  sure 
to  be  realized  in  the  end.  All  such  property, 
whether  in  city  lots  or  farms,  should,  if  an  income 
tax  only  were  levied,  be  estimated  yearly,  according 
to  its  increasing  value,  and  be  assessed  upon  that 
principle. 

An  important  consideration,  showing  the  justice 
of  the  income  tax,  is  this,  that,  if  removed,  the 
amount  that  has  hitherto  been  raised  by  it  must  be 
thrown  upon  consumption,  and,  of  course,  to  a  great 
extent,  upon  the  laboring  classes.  While  laid  upon 
incomes  over  $1000,  the  tax  fell  mainly  upon  capital. 
As  the  capitalist  pays  no  more  in  proportion  to  what 
he  consumes  of  taxed  commodities  than  the  working 
mechanic  or  day  laborer,  he  ought  to  pay  a  tax  which 
shall,  at  least,  in  some  measure,  secure  an  equality 


NATIONAL    TAXATION.  353 

between  him  and  the  laboring  man.  Hence  the  re- 
moval of  this  tax  would  be  an  act  of  great  injustice 
to  the  producing  classes,  who  consume  by  far  the 
greater  part  of  all  commodities  upon  which  customs 
and  excise  duties  are  collected. 


TAXATION    UPON   EXPORTS. 

Whenever  a  people  produce  more  of  any  commo- 
dity than  is  required  for  their  own  consumption,  the 
surplus  must  find  a  foreign  market,  or  the  produc- 
tion will  not  be  extended  beyond  the  home  demand. 
Anything,  therefore,  which  has  a  tendency  to  pre- 
vent the  sale  of  domestic  products  in  a  foreign  mar- 
ket must  discourage  home  industry.  Such  being  the 
case,  what  must  be,  in  general,  the  effect  of  duties 
laid  upon  exports?  Evidently  to  reduce  the  amount 
exported,  and  benefit  the  foreign  producer  of  the  ar- 
ticles thus  taxed. 

The  unquestionable  effect  of  export  duties  is  to 
lessen  production  at  home  and  give  encouragement 
to  foreign  labor.  This  is  a  general  principle,  appli- 
cable to  every  commodity  of  home  growth  or  pro- 
duction, except  such  as  one  nation  may  have  a  virtual  mo- 
nopoly of;  that  is,  may  be  able  to  produce  in  so  much 
greater  perfection,  or  at  so  much  lower  rate  of  cost, 
or  both,  that  no  other  nation  can  compete  with  it. 
In  that  case  the  exporting  nation  might  impose  a 
duty,  which,  while  it  should  create  a  revenue,  would 
not  lessen  production  materially,  if  at  all. 


354  DISTRIBUTION. 

V 

TAXATION   OF    COTTON. 

Many  persons  are  of  the  opinion  that  an  export 
duty,  or  its  equivalent  in  the  form  of  excise,  might 
be  laid  upon  cotton  without  any  detriment  to  the 
general  interest  of  the  trade  of  the  country,  while  it 
would  produce  a  considerable  revenue  at  the  ex- 
pense of  the  foreign  consumers. 

It  is,  then,  an  important  economical  and  financial 
question  to  the  people  of  the  United  States,  whether 
the  peculiar  advantages  they  have  over  all  other 
cotton-growing  countries  give  them  such  a  monopoly 
as  to  enable  them  to  lay  an  export  duty  upon  it,  with- 
out any  immediate  or  remote  injury  to  themselves. 

The  consideration  which  must  determine  the  ques- 
tion is  simply  this, — if  cotton  can  be  produced  in 
the  United  States  so  much  lower  than  anywhere 
else  that  the  imposition  of  an  export  duty,  say  of 
two  cents  per  pound,  would  not  affect  its  sale  or  the 
demand  for  it  in  other  countries,  then  the  duty  might 
be  laid,  and  the  whole  burden  of  it  would  fall  on 
the  foreign  consumer.  The  country  would  gain  the 
entire  amount  of  the  excise,  and  yet  the  producer 
be  in  no  degree  injured  by  it.  Such  a  result  is  pos- 
sible in  the  future,  since  the  advantages  of  our  soil 
and  climate  are  so  superior  to  those  of  any  other 
cotton-growing  region,  and  the  area  upon  which  cot- 
ton may  be  raised  so  extensive. 

The  area  upon  which  the  successful  culture  of 
cotton  may  be  carried  on  has  been  estimated  at 
666,196  square  miles,  while  only  10,888  have  as  yet 
been  used. 

From  these  facts  it  will  Le  seen  that  the  raising 


STATE   TAXATION.  355 

of  cotton  in  the  United  States  must  eventually  be 
brought  to  the  same  general  level  of  profits  as  other 
branches  of  agriculture,  and  as  its  price  in  the  mar- 
kets of  the  world  will  be  governed  by  the  same  law 
as  the  price  of  wheat  and  similar  products,  it  may 
come  to  pass  that  it  may  be  reduced  so  low,  and  yet 
be  as  profitable  as  agriculture  generally,  that  an  ex- 
cise duty  might  be  laid  upon  it  that  would  advantage 
the  nation  to  the  full  extent  of  its  amount,  and  not 
in  the  least  injure  the  cotton  grower.  The  future 
will  disclose  whether  such  shall  ever  be  the  result. 


CHAPTER   XL 

STATE   TAXATION. 

A  GENERAL  valuation  of  all  real  and  personal  prop- 
erty is  made  by  the  authority  of  the  State,  accord 
ing  to  which  all  State  taxes  are  apportioned  to  each 
county,  city,  or  town.  The  municipal  authorities 
then  assess  the  amount  allotted  them  upon  the  prop- 
erty and  polls  of  their  constituents,  together  with 
the  amount  required  for  city  or  town  expenditures. 

Such  taxes  are  direct,  and  laid  wholly  on  property, 
except  the  small  amount  of  poll-taxes.  There  may 
be  some  slight  variation  in  different  States  from  the 
course  we  have  stated;  but  it  is  quite  unessential, 
and  does  not  materially  change  the  grand  result. 
The  law  makes  it  the  duty  of  each  person  to  furnish 
the  assessors  annually  a  true  invoice  of  his  estate, 


356  DISTRIBUTION. 

and  to  its  correctness  he  may  be  required  to  make 
oath;  and,  if  any  person  neglects  or  refuses  to  make 
such  inventory,  the  assessors  make  one  for  him,  ac- 
cording to  their  own  judgment. 

The  rate  of  tax  varies  from  year  to  year,  and  is 
widely  different  in  different  towns  and  cities.  Be- 
fore the  late  war,  the  rate  in  Massachusetts  was 
seldom  less  than  sixty,  or  more  than  one  hundred 
cents  on  a  hundred  dollars ;  but  such  have  been  the 
expenditures  caused  by  the  war,  that  few  now  have 
a  rate  less  than  one  hundred,  and  some  have  been 
as  high  as  three  hundred  and  fifty,  cents  on  the  hun- 
dred dollars. 

This  tax,  if  the  valuation  be  fairly  made,  approxi- 
mates to  justice  and  equality.  It  is  assumed  that 
every  man's  ability  to  pay  is  in  proportion  to  the 
property  he  holds ;  that  his  revenue  corresponds 
with  his  wealth.  This  may,  or  may  not  be  true; 
and,  as  we  shall  have  occasion  to  show,  there  are 
circumstances  which  disturb,  to  some  extent,  the 
equal  operation  of  this  tax. 

And  here  we  may  notice  some  of  the  objections  to 
this  compound  system  of  poll  and  property  taxation. 
Poll-tax  payers  vote  directly  upon  the  public  appro- 
priations, yet  they  have  no  personal  interest  whatever 
in  the  amount  of  expenditures.  No  matter  whether 
a  proposal  to  expend  money  is  wise  and  necessary,  or 
frivolous  and  wasteful,  the  poll-tax  payer  can  vote  for 
it  with  entire  impunity.  It  is  nothing  to  him  whether 
the  sum  be  one  thousand  or  ten  thousand  dollars. 
Indeed,  the  influence  of  poll-tax  payers  is  often  in 
favor  of  the  most  lavish  expenditures.  A  new  road, 
for  example,  is  proposed  in  town  meeting.  It  may 


STATE   TAXATION.  357 

be  quite  unnecessary,  and  ought  not  to  be  made ; 
but  the  poll-tax  payers,  a  large  share  of  whom  are 
laborers,  will  be  immediately  benefited  by  the  de- 
mand that  will  be  made  for  labor,  and  will  be  very 
likely  to  be  in  favor  of  it.  It  needs  no  argument  to 
show  the  bad  effects  of  such  a  state  of  things,  re- 
garded only  in  an  economical  point  of  view.  If 
men  may  vote  away  money  in  the  payment  of  which 
they  have  no  interest,  is  it  likely  to  be  done  to  the 
advantage  of  the  public  ?  Is  it  not  certain  that  there 
will  be  unwise  and  reckless  expenditures  ? 

This  false  position  of  the  poll-tax  payer  has  at- 
tracted the  attention  of  those  who  are  narrowly 
watching  the  effects  of  equality  of  suffrage  without 
equality  of  taxation.  The  result  of  popular  votes 
during  the  civil  war,  by  which  immense,  and  often 
quite  unnecessary,  burdens  were  imposed  upon 
towns,  has  caused  no  small  anxiety  among  those  who 
have  noticed  the  natural  consequences  of  giving  to  a 
class  numerous  and  powerful,  at  the  ballot-box,  the 
power  to  impose  taxes  upon  the  public,  from  which 
they  are  themselves  exempt. 

On  the  other  hand,  the  poll-tax  payer,  while  he 
contributes  heavily  towards  the  national  expendi- 
tures through  customs  and  excise,  has  no  direct  vote 
in  regard  to  them.  He  can  vote  where  his  own  in- 
terest would  lead  him  to  vote  wrong,  but  has  no 
power  to  vote  directly  where  his  interest  would  lead 
him  to  vote  right. 

The  income  tax  principle,  if  universally  adopted, 
while  it  would  doubtless  relieve  poll-tax  payers  of  a 
part  of  their  present  taxation,  would,  at  the  same 
time,  bring  their  interests  into  harmony  with  those 


358  DISTRIBUTION. 

of  property-tax  payers,  and  thus  promote  the  gen- 
eral welfare  of  the  public. 

It  hardly  need  be  said  that  this  form  of  taxation 
is  not  in  accordance  with  the  maxims  laid  down  by 
Adam  Smith;  those  who  pay  it  not  having  equal 
ability,  or  enjoying  "  an  equal  revenue."  It  is  a  tax 
founded  on  no  sound  principle  whatever,  and,  if  it 
were  the  only  tax  imposed,  would  be  as  unjust  as  a 
tax  could  well  be.  It  forms,  however,  only  a  part 
of  a  system  which  must  be  looked  at  in  all  its  bear- 
ings, in  order  to  form  a  correct  judgment  of  the 
operation  of  this  particular  tax,  which  by  law  is  a 
limited  one,  determined  by  State  legislation.  In 
Massachusetts,  the  maximum  poll-tax  is  now  fixed 
at  "not  over  two  dollars,"  but  maybe,  as  it  has 
been,  changed  from  time  to  time.  It  has  never,  we 
believe,  been  higher  than  at  present. 

The  property-  and  poll-tax  being  the  two  modes 
by  which  all  revenues  are  raised  by  the  individual 
States,  we  will  look  for  a  moment  at  their  operation 
as  between  the  different  classes  upon  which  they  are 
imposed.  To  do  this,  we  refer  to  a  valuation  and 
tax  list  before  us,  and  find  the  following  examples : 

B.  H. — Buildings  and  45  acres  of  land  .     .     $1000 
Stock,  etc 345 

$1345.  Taxes,  $15.47 
Poll,         2.00 

$17.47 
T.  G. — Buildings  and  43  acres  of  land  .     .     $1500 

Stock  238 


$1738.  Taxes,  $19.99 
Poll,        2.00 

$21.99 


STATE   TAXATION.  359 

L.  G.  S.— Buildings  and  56  acres  of  land  .     $1200 
Stock 300 

$1500.  Taxes,  $17.25 
Poll,        2.00 

$19.25 
Average  property,  $1528.     Average  tax,  $19.57. 

We  here  find  that  these  small' farmers  pay  $19.57 
each,  equal  to  nine  and  a  half  times  as  much  as  the 
poll-tax  contributors.  Does  any  one  suppose  that 
the  incomes  of  the  former  are  nine  and  a  half  times  as 
great  as  the  latter  ?  Let  us  test  the  question. 

Suppose  each  of  these  farmers  derives  &net  income 
of  ten  per  cent,  on  his  capital,  over  all  outlays  and 
repairs,  and  that  his  labor  is  worth  to  him  five  hun- 
dred dollars  per  annum.  This  is  a  large  allowance: 

Land  and  stock,  as  above,  at  ten  per  cent $152.80 

His  own  labor  equal  to 500.00 

Total  income  . $652.80 

Now,  we  will  assume  that  the  exclusive  poll-tax 
payers  have  an  average  income  of  four  hundred  dol- 
lars. We  include  in  this  list  not  only  all  common 
laborers,  but  skilled  workmen,  mechanics,  and  others 
whose  labor  is  worth,  under  a  sound  currency,  $1.50 
to  $3  per  day,  and  also  all  clerks,  and  others  whose 
salaries  are  six  hundred  dollars  and  under.  Then 
if  these  classes  average  four  hundred  dollars  per 
year,  it  will  appear  that  while  the  income  of  the  poll- 
tax  payers  is  charged  $2,  these  sni;  11  property 
holders  are  charged  $19.57,  or  six  times  as  much  as 
they  ought  in  proportion  to  pay. 

A  recent  return  ma  le  to  the  Legislature  of  Mas- 
sachusetts showed  that  there  were  in  the  State 


360  DISTRIBUTION. 

112,000  persons  who  paid  only  a  poll-tax,  and  that  a 
majority  of  the  voters  in  some  of  its  chief  cities 
were  of  this  class,  and  had,  of  course,  the  power  by 
their  votes  to  determine  the  financial  policy  of  the 
cities  in  which  they  lived. 

Effect  of  the  Two  Systems. — We  are  now  able  to 
compare  the  results  of  the  two  different  systems, 
viz.,  national  and  State  taxation.  In  the  national, 
we  find  that  the  greater  part  of  all  taxes  are  indirect; 
the  State  and  municipal  taxes  are,  with  slight  excep- 
tions, direct.  The  former  fall  almost  wholly  on  con- 
sumption ;  the  latter,  upon  property.  The  first  is 
unjust  to  labor,  or  the  non-property-holding  classes; 
the  other  is  unjust  to  capital,  or  those  who  hold  tax- 
able estate.  One  operates  as  an  offset  to  the  other. 
Neither  is  just  in  itself,  nor  does  the  action  of  the 
two  systems  conjointly  establish  perfect  justice,  but 
it  approximates  as  nearly  to  it,  perhaps,  as  any  sys- 
tem of  taxation  likely  at  present  to  be  adopted. 

TAXATION    OF    CREDITS. 

It  has  sometimes  been  maintained  that  credits 
ought  not  to  be  taxed,  but  all  assessments  be  made 
upon  values,  or  property,  personal  and  real.  Taxes, 
it  has  been  argued,  ought  not  to  be  laid  upon  per- 
sons, but  upon  that  out  of  which  they  can  alone  be 
paid,  viz.,  property. 

But  credits  are  taxed  as  well  as  values.  A  holds 
a  farm  worth  $10,000,  mortgaged  to  B  for  $5000.  A 
pays  taxes  upon  the  whole  valuation,  and  B  upon 
$5000,  as  money  at  interest.  A,  it  is  said,  is  doubly 
taxed.  This  is  a  practical  question  that  has  often 


STATE   TAXATION.  361 

puzzled  legislators.  Let  us.  therefore,  carefully  ex- 
amine it. 

Suppose  A  and  B  aforesaid  form  an  entire  com- 
munity, and  that  the  whole  tax  of  $150  is  imposed 
on  property.  The  whole  valuation  will  then  be 
$10,000  (A's  farm),  and  the  rate  one  and  a  half  per 
cent.,  which  A  pays,  and  B  goes  untaxed.  We  will 
now  change  the  principle,  and  have  both  property 
and  credits  taxed.  The  valuation  will  then  be,  A's 
farm,  $10,000,  and  B's  money  at  interest,  $5000 ; 
total,  $15,000;  and,  with  the  same  amount  to  be 
assessed  ($150),  the  rate  will  be  one  per  cent.,  of 
which  A  pays  one  hundred,  and  B  fifty,  dollars.  So, 
then,  we  discover  that  A  is  not  doubly  taxed,  as 
assumed,  but  at  the  worst  pays  only  twenty-five  dol- 
lars, or  one-third  more  than  his  share.  Such  must, 
in  principle,  be  the  result  of  this  kind  of  taxation, 
taking  a  whole  community  together.  All  the  amount 
taxed  upon  credit  is  so  much  relief  to  taxation  upon 
property.  This  seems  to  be  clear;  and  the  justice 
of  the  thing  is  established  by  the  fact  that  A  bought 
his  farm  knowing  that  it  would  be  subject  to  a  full 
taxation,  and  bought  it  cheaper,  as  we  have  shown 
in  another  place,  on  that  account.  B,  on  the  other 
hand,  accepted  his  mortgage  on  the  same  ground, 
knowing  it  would  be  subject  to  tax  on  the  common 
valuation.  Is  either  party,  then,  wronged? 

But  perhaps  another  reason  may  be  given  why  A 
should  pay  taxes  upon  the  whole  value  of  his  farm ; 
viz.,  that,  having  the  usufruct  of  the  whole,  he  is  en- 
titled to  all  the  profits  on  the  farm.  "But  he  don't 
own  the  whole  of  the  farm."  True,  that  is  his  mis- 
fortune; if  he  did,  he  would  obtain  a  larger  amount 

31 


862  DISTRIBUTION. 

of  net  profits ;  but  his  obligation  to  pay  tax  on  the 
whole  is  not  impaired  because  he  has  the  use  of  a 
part  of  B's  capital.  As  the  owner  of  the  farm,  A 
has  a  chance  for  all  the  profits  that  can  be  made 
from  the  whole,  while,  by  the  taxation  of  B  on  the 
mortgage,  the  former  saves  a  part  of  what  he  would 
otherwise  pay  in  taxes.  One  pays  taxes  for  the 
profits  of  business ;  the  other,  for  the  income  on  his 
capital. 

In  this  case  we  find  another  very  clear  illustration 
of  the  correctness  of  the  income-tax  policy.  If  there 
were  no  other  tax  than  upon  income,  the  matter 
would  stand  thus : 

A's  amount  from  his  farm,  say $900 

He  deducts  the  interest  he  pays  B 300 

A  pays  tax  on  his  net  income  of 600 

B's  income  is  taxed  as 300 

Total  income  to  be  taxed $900 

Amount  to  be  raised,  one  hundred  and  fifty  dollars; 
of  this,  A  will  pay  one  hundred  dollars  and  B  fifty, 
and  there  would  be  no  question  as  to  the  justice  of 
the  system  b}'  which  both  were  thus  taxed.  If  A's 
income  should  be  more  or  less  than  nine  hundred 
dollars,  he  would  pay  more  or  less,  and  B  must  pay 
less  or  more  accordingly. 

In  the  absence  of  the  income-tax  principle,  what 
can  be  more  equitable  and  just  than  the  practice  of 
taxing  both  mortgagor  and  mortgagee?  If  the 
former  were  allowed  to  deduct  from  his  inventory 
the  amount  he  owed  the  latter,  it  would  often  hap- 
pen that,  the  mortgagee  not  living  in  the  same  town 
or  State,  so  much  property  would  escape  taxation 


STATE    TAXATION.  363 

altogether.  This  in  some  communities,  especially 
our  Western  States,  would  be  a  great  evil.  That 
much  hardship  may  often  result  from  taxing  credits 
as  well  as  property  is  undoubtedly  true ;  but  that 
only  affords  additional  evidence  that  the  income-tax 
principle  is  the  only  correct  one.  Next  to  this  would 
be  the  levying  of  all  taxes  upon  property  exclusively ; 
and  if  adopted  at  the  very  commencement  of  a 
social  organization,  as  at  the  landing  at  Plymouth  in 
1620,  it  would  secure  a  just  taxation,  because  all 
property  would  be  created,  held,  and  transferred 
under  that  well-known  .condition. 

OUGHT  GOVERNMENT  BONDS  TO  BE  EXEMPTED  FROM 
TAXATION. 

The  national  securities  are  exempted  by  Congress 
from  all  taxation  by  State  and  municipal  authorities. 
Is  this  a  wise  and  just  policy 

The  present  debt  (1871),  if  all  funded,  would 
amount  to  about  $2,300,000,000;  at  a  low  rate,  the 
interest  must  be  about  $125,000,000,  and  so  much 
of  annual  income  must,  of  course,  escape  taxation. 
This,  in  many  cases,  would  cause  a  very  unequal 
distribution  of  the  public  burdens.  For  example, 
in  a  community  where,  as  is  often  the  case,  the 
chief  wealth  is  in  the  hands  of  a  few  persons  who 
have  succeeded  in  placing  their  funds  in  the  national 
stocks,  the  favored  ones  can  vote  for  the  most  gen- 
erous appropriations  for  any  kind  of  public  improve- 
ments, and  yet  not  be  assessed  a  dollar  for  the 
expense  of  making  them.  The  poorer  class  of  free- 
holders, with  their  estates,  perhaps,  encumbered  by 


364  DISTRIBUTION. 

mortgage,  find  themselves  taxed  for  every  acre  of 
land,  every  horse,  cow,  and  sheep  they  own,  while 
their  rich  neighbor  is  taxed  upon  nothing,  because 
he  holds  his  property  in  United  States  bonds.  It  is 
certainly  very  natural  that  those  who  are  thus  taxed 
should  feel  themselves  greatly  wronged.  They  do 
not  see  why  the  bondholder  should  not  pay  as  well 
as  the  landholder. 

Setting  aside  all  considerations  of  justice,  and 
regarding  the  matter  only  in  an  economical  point 
of  view,  we  can  perceive  that  by  this  exemption  the 
bondholder  escapes  his  proper  share  of  taxation,  and 
consequently  may  spend  in  luxurious  gratifications 
the  amount  he  ought  to  contribute  to  the  public 
charges,  while  the  less  fortunate  citizen,  being  obliged 
to  pay  more  than  his  true  sh'are  of  the  public  ex- 
penditures, must  deprive  himself  and  family  of 
many  things  needful  to  their  welfare  and  happiness. 
One  is  made  richer,  the  other  poorer,  than  he  ought 
to  be.  This  result  cannot  be  for  the  public  good, 
and  the  glaring  injustice  thus  inflicted  becomes  ap- 
parent to  every  one.  Hence  the  very  general  dis- 
approbation with  which  this  policy  is  regarded. 

The  apology  for  all  this  is  the  plausible  argument 
that  if  the  bonds  were  not  exempted,  States  and 
municipalities  might  impose  such  taxes  upon  them  as 
to  render  them  comparatively  worthless,  thus  depriv- 
ing government  of  the  means  of  raising  funds  by  the 
issue  of  its  bonds.  That  this  is  but  a  specious  objec- 
tion may  be  seen  from  the  consideration  that,  to  pre- 
vent the  possibility  of  such  a  result,  Congress  has  only 
to  provide  by  law  that  none  of  its  securities  shall  ever 
be  subjected  to  any  higher  rate  of  taxation  than  what 


STATE   TAXATION.  365 

is  imposed  upon  all  other  property,  personal  and 
real ;  that  they  shall  be  placed  in  general  valuation 
lists  for  taxation,  and  be  assessed  at  a  uniform  rate. 
The  objection  that  the  national  government  would 
be  obliged  to  pay  a  higher  rate  of  interest,  say  six, 
instead  of  five  per  cent.,  in  consequence  of  this,  has 
no  sufficient  foundation,  because  the  State  govern- 
ments and  municipalities  would  gain  the  difference 
by  their  increased  valuation;  and,  what  is  more  im- 
portant, justice  would  be  secured  to  all  parties  con- 
cerned. Each  community  would  have  its  legitimate 
resources  for  taxation.  The  rate  of  interest  paid  by 
the  general  government  is  far  less  essential  than  the 
equality  of  the  general  taxation  by  which  all  public 
expenditures,  national,  State,  or  municipal,  are  pro- 
vided for. 

With  a  single  question  we  close  the  argument: 
If  the  government  of  the  United  States  can  ne- 
gotiate its  bonds  abroad,  say  at  five  and  a  half  per 
cent.,  and,  at  the  same  time,  makes  an  exemption 
of  all  local  taxes  upon  the  same,  equal  to  at  least  one 
and  a  half  per  cent,  more,  in  consequence  of  which 
the  bonds  are  taken  at  home  instead  of  abroad,  do 
not  the  several  States  lose  in  their  revenues  the  full 
amount  of  the  exemption,  without  any  advantage 
whatever  being  gained  by  the  national  government? 

CONVERSION    OF   THE   NATIONAL    DEBT. 

We  assume  the  national  debt  on  the  1st  of  Jan- 
uary, 1872,  to  be  $2,300,000,000,  and  that  the 
annual  interest  hereafter  will  average  at  the  rate  of 
five  and  a  half  per  cent,  payable  semi-annually. 

31* 


366  DISTRIBUTION, 

This  is  a  liberal  allowance  for  interest,  since  it  is 
sufficiently  certain  that  the  debt  may  be  consolidated 
at  the  rate  of  five  and  a  half  per  cent,  interest  or 
less,  and  of  the  principal,  the  sum  of  400  millions  at 
present  bears  no  interest  at  all. 

With  such  data,  we  say  that  should  Congress  ap- 
propriate the  sum  of  $150,000,000  annually  for  the 
payment  of  the  principal  and  interest,  the  whole 
debt  would  be  liquidated  at  the  end  of  thirty-three 
years  and  ten  months,  or  during  the  year  1905.* 

The  interest  actually  paid  the  last  year  was,  in 
round  numbers,  $125,000,000.  In  order  to  clear  off 
the  debt,  it  would  only  be  necessary  to  pay  25  millions 
annually  more  than  we  must  certainly  pay  while  the 
present  debt  lasts. 

The  precise  burden,  then,  which  the  country  will 
assume  if  it  undertakes  to  free  itself  from  its  pres- 
ent indebtedness,  is  the  payment  of  25  million  dol- 
lars annually;  no  more,  no  less. 

That  a  national  debt  is  an  unmitigated  evil,  a  con- 
stant drain  upon  the  public  treasury,  a  continual  ex- 
pense for  its  management,  an  unceasing  source  of 
official  corruption,  and  a  certain  cause  of  weakness 
and  danger  in  case  of  war  or  any  unlooked-for  ca- 
lamity, is  quite  too  obvious  to  need  proof:  we  there- 
fore turn  to  the  consideration  of  the  practicability 
of  liquidating  it,  and  the  benefits  that  would  result 
from  such  a  measure. 

1.  Its  practicability. — If  the  payment,  as  we  have 
seen,  of  25  millions  each  year  will  secure  the  extin- 

*  For  this  computation  we  are  indebted  to  the  kindness  of  E. 
B.  Elliott,  Esq.,  the  able  statistician  of  the  Treasury  Department 


STATE   TAXATION.  367 

guishment  of  the  debt  in  thirty-three  years  and  ten 
months,  and  we  assume  that  the  population  in  the 
mean  time  was  but  40  millions,  we  shall  find  that 
the  annual  tax  per  capita  would  be  but  sixty-two  and 
a  half  cents,  equal  to  one  and  a  quarter  cent  per 
week  to  each  inhabitant.  But  instead  of  40  millions 
we  may  be  sufficiently  certain  that  the  average  num- 
ber during  the  whole  time  will  be  50  millions,  re- 
ducing the  contributions  to  one  cent  per  week. 

Such  would  be  the  extent  of  the  effort  required 
to  discharge  the  public  debt  within  the  period  men- 
tioned. Can  any  reasonable  man  doubt  that  the 
people  of  the  United  States  can  make  this  effort 
without  any  distressing  sacrifice  or  painful  self- 
denial  ?  that  they  can  save  the  almost  infinitesimal 
sum  we  have  indicated  without  any  disturbance  to 
the  trade  and  industry  of  the  nation  ? 

2.  Results  of  paying  the  debt. — Although  thus  easily 
accomplished,  the  result  of  doing  this  would  be  no 
less  than  the  conversion  of  $2,300,000,000  of  mere 
debt,  which  produces  nothing  whatever,  into  capital 
that  would  of  necessity  be  employed  in  the  active 
industries  of  the  nation  ;  because,  as  the  bonds  were 
discharged  from  time  to  time,  those  who  had  held 
them  (as  all  do  as  a  source  of  income)  would,  of 
course,  seek  some  other  mode  of  investment,  and 
railroads,  manufactures,  commerce,  and  agriculture 
would  be  benefited  to  the  fulTextent  of  the  additional 
investments  thus  made  in  them;  consequently  the 
productive  power  of  the  nation  would  be  enhanced 
by  this  increase  of  its  resources  to  the  extent  of  over 
two  thousand  millions  of  effective  capital. 

If  it  be  urged  as  an  objection  to  this  view  of  the 


368  DISTRIBUTION. 

subject  that  a  considerable  part  of  our  national  debt 
is  held  abroad,  and  therefore  the  payment  of  it  would 
prove  injurious,  it  may  be  replied  that  when  that 
part  of  the  public  debt  were  paid  off,  a  large  share 
of  the  amount  would  undoubtedly  be  reinvested  in 
this  country  in  the  various  State  and  railroad  stocks 
and  bonds  that  are  sure  to  be  in  market;  if  not, 
und  the  funds  necessary  to  meet  them  were  remitted 
\)  Europe,  the  practical  effect  would  be  to  restrict, 
for  the  time  being,  the  importation  of  foreign  com- 
modities, a  result  by  no  means  undesirable  under 
such  circumstances. 

In  whatever  way  we  regard  the  proposal  for  a 
gradual  but  certain  annihilation  of  the  national  debt, 
it  must  be  apparent  to  all  intelligent  minds  that  its 
conversion  into  business  capital  will  be  the  result, 
and  the  nation  be  greatly  benefited  thereby. 


CHAPTER  XII. 

FOREIGN   INDEBTEDNESS. — I.   ECONOMY   OF    FOREIGN   IN- 
DEBTEDNESS. 

PECUNIARY  obligations,  between  different  nations, 
may  be  of  four  different  kinds: 

1st.  Individual  Indebtedness. — This  can  only  be  of 
limited  and  temporary  duration,  since  it  must  soon 
be  paid  or  wiped  out  by  insolvency. 

2d.  Corporate  Indebtedness. — This  is  of  two  kinds : 
(a)  the  bonds  or  other  obligations  of  incorporated 


FOREIGN    INDEBTEDNESS.  369 

companies  formed  for  industrial  purposes,  the  build- 
ing of  railroads,  etc. ;  and  (b)  the  bonds  of  munici- 
pal corporations,  cities,  towns,  and  counties.  These 
have  been  issued  to  an  enormous  extent  in  the  United 
States,  and  a  large  amount  have  been  disposed  of 
abroad.  • 

3d.  State  Indebtedness. — Nearly  all  the  States  of  the 
American  Union  have  contracted  debts  and  issued 
coupon  bonds,  which,  to  a  considerable  extent,  have 
been  sold  abroad.  These  rest  upon  a  different  foot- 
ing from  the  preceding,  since  they  cannot  be  en- 
forced by  any  legal  process.  They  are  secured  only 
by  the  honor  of  the  promisor. 

4th.  National  Indebtedness. — Great  Britain  has  a 
debt,  as  heretofore  stated,  of  eight  hundred  millions 
sterling  ;  but  it  is  almost  entirely  held  at  home.  The 
rate  of  interest  on  her  consols  is  only  three  per  cent., 
and  there  is  little  inducement  for  capitalists  in  Amer- 
ica to  invest  in  them  ;  but  it  is  quite  otherwise  with 
the  United  States.  Interest  here  is  at  least  six  per 
cent,  on  the  best  securities. 

It  is  generally  estimated  that  about  one  thousand 
millions  of  the  bonds  of  the  United  States  have 
gone  to  Europe. 

II.    THE    EXPORTATION    OP    PUBLIC    STOCKS. 

Whether  the  sale  of  such  stocks  abroad  is  desir- 
able or  not,  will  depend  entirely  upon  the  character 
of  the  commodities  sent  in  return  for  them,  whether 
these  be  for  advantageous  or  disadvantageous  con- 
sumption ;  and  this  again  will  depend  upon  the 
financial  and  commercial  condition  of  the  country 


370  DISTRIBUTION. 

from  which  they  are  sent.  Suppose  one  hundred 
millions  sent  to  England,  and  returned  in  railroad 
iron,  which,  put  into  use,  pays  a  net  income  of  ten 
per  cent.,  besides  facilitating  the  transport  of  cotton 
and  wheat,  and  thus  adding  to  the  national  wealth. 
As  these  stocks  pay  the  American  holders  but  six 
per  cent,  and  by  selling  them  and  investing  the 
amount  in  railroads  they  get  ten,  there  is  a  clear 
gain  in  income  of  66f  per  cent.  The  foreigner,  on 
the  other  hand,  who  could  only  get  four  per  cent, 
for  his  money  in  home  investments,  now  gets  six,  an 
improvement  upon  his  income  of  fifty  per  cent. 
Both  parties  are  benefited.  On  the  other  hand,  if 
the  amount  sold  were  returned  in  fancy  goods,  jew- 
elry, etc.,  which  increased  the  consumption  of  lux- 
uries, but  in  no  way  contributed  to  reproduction, 
the  country  would  in  a  short  time  be  poorer  to  the 
whole  amount.  The  foreigner  would  hold  his  bond, 
and  get  his  interest,  but  the  American  would  have 
nothing  to  show  for  it.  Or  stocks  may  be  exported 
in  payment  for  an  actual  balance  of  trade.  If,  with 
all  our  export  of  commodities  and  specie,  there  still 
remains  an  adverse  balance,  American  stocks  of  one 
kind  or  another  may  be  sent  and  sold  to  adjust  it. 
By  this  last  operation  the  debt  is  merely  "  extended" 
or  postponed;  and  as  the  interest  upon  this  must 
be  annually  paid,  a  larger  export  of  commodities, 
specie,  or  stocks  must  be  made  in  the  future. 

FALLACIES    RESPECTING    FOREIGN   INDEBTEDNESS. 

No  sentiment  or  opinion  is  more  common,  per- 
haps, among  the  people,  than  that  it  is  very  undo- 


FOREIGN    INDEBTEDNESS.  371 

sirable,  or  dangerous   even,  to  have   the  national 
debt  held  abroad.     Is  this  opinion  well  founded? 

1st.  A  debtor  cannot  always  choose  who  his 
creditor  shall  be.  If  deeply  involved,  those  will 
hold  his  securities  who  are  most  able  to  hold  them. 
They  will,  like  commodities,  go  where  they  are 
most  wanted,  where  they  will  bring  the  highest 
price. 

2d.  It  makes  Iktle  difference  to  the  debtor,  if  he 
can  meet  his  obligations  when  due,  who  may  hold 
them.  There  is  no  friendship  in  trade.  Native  or 
foreigner  will  alike  demand  his  pay,  when  he  has  a 
right  to  do  so. 

If  these  propositions  are  true,  we  see  that  it  is 
quite  impossible  to  prevent  foreigners  from  pur- 
chasing our  national  securities,  and  of  little  impor- 
tance if  we  could.  It  is  a  great  misfortune  that  we 
are  deeply  in  debt  as  a  nation.  If  that  indebtedness 
were  wholly  to  our  own  people  it  would  be  quite 
favorable ;  for  then,  as  a  people,  we  should  owe 
nothing  at  all,  since  what  was  to  the  debit  of  one 
citizen  would  be  to  the  credit  of  another;  but  if 
this  cannot  be,  and  if  capital  is  worth  more  to  us 
than  it  is  to  others,  then  is  it  not  fortunate  if  others 
are  ready  to  loan  us  theirs,  that  is,  are  ready  to 
take  our  public  indebtedness?  As  an  admitted 
fact,  the  use  of  capital  is  about  twice  as  valuable  in 
the  United  States  as  in  England :  why,  then,  should 
we  not  allow  Englishmen  to  hold  our  public  debt? 

A  foreign  loan  to  the  United  States  government 
of  one  hundred  millions  in  the  latter  part  of  1861 
would  have  saved  the  country  several  hundred  mil- 
lions, inasmuch  as  the  suspension.of  specie  payments 


372  DISTRIBUTION. 

might  thus  have  been  postponed  for  a  twelvemonth, 
and,  perhaps,  even  been  avoided  through  the  war. 
By  this  means  the  prices  of  all  the  government  had 
to  purchase  would  have  been  kept  down  to  the 
natural  standard.  This  measure,  if  accompanied 
with  the  expulsion  of  all  bank  currency  from  circu- 
lation, and  with  the  issue  of  government  notes  to 
take  their  place  so  far^as  desirable,  would,  in  the 
end,  have  saved  a  great  part  of  the  present  national 
indebtedness. 

From  whatever  point  of  view  we  may  look  at  the 
subject,  we  find  there  can  be  no  well-founded  ob- 
jection to  the  sale  of  American  stocks  in  Europe. 
On  the  other  hand,  such  a  sale  of  them  must  be 
advantageous,  when  made,  under  a  sound  currency. 

FALLACIES    RESPECTING    A   NATIONAL   DEBT. 

1st.    That  a  national  debt  is  public  wealth. 

"The  funded  debt  of  the  United  States  is,  in  effect,  the  addition 
of  three  thousand  millions  to  the  realized  wealth  of  the  nation. 
.  .  .  It  is  three  thousand  millions  added  to  its  available  capital."* 

If  this  is  so,  it  is  fortunate,  so  far  as  the  financial 
condition  of  the  country  is  concerned,  that  the  Re- 
bellion took  place;  that  it  continued  so  long  and 
cost  so  much.  Had  it  lasted  long  enough  to  have 
made  the  debt  tenfold  greater  than  it  now  is,  the 
"•available  capital"  of  the  nation  would  have  been 
correspondingly  enlarged ;  and,  of  course,  its  power 

•*  See  pamphlet  issued  by  "  Jay  Cooke,  General  Subscription 
Agent  for  the  Sale  of  Government  Bonds,"  entitled,  "How  our 
National  Debt  maybea  National  Blessing."  Philadelphia,  1865. 


FOREIGN    INDEBTEDNESS.  373 

of  production  so  much  increased.  It  must  be  a 
misfortune,  economically  considered,  that  the  war 
closed  so  early.  But  let  us  examine  into  the  truth 
of  the  assertion  that  "  a  national  debt  is  public 
wealth." 

How  was  it  created,  and  for  what  ? 

It  was  contracted  for  war  expenditures.  The 
operation  was  simply  this:  A  certain  part  of  the 
people,  having  the  ability  to  do  so,  furnished  the 
nation  with  the  means  to  carry  on  the  war.  These 
persons  became  the  creditors  of  the  government, 
and  they  now  hold  the  public  stocks.  All  the  rest 
of  the  people  are  debtors,  and  jointly  owe  the 
amount  of  the  debt.  It  is  a  lien  upon  estates,  per- 
sonal and  real,  and  must  remain  so  until  liquidated. 
Are  those  who  are  the  debtors  to  the  bondholders 
any  richer  in  consequence  of  the  existence  of  the 
public  debt?  Certainly  not:  they  are  just  so 
much  poorer.  They  must  subtract  from  their  in- 
comes, each  year,  so  much  as  they  have  to  pay 
for  interest  on  the  national  debt.  Are  the  bond- 
holders any  richer  in  consequence  of  the  creation 
of  this  debt?  If  they  actually  loaned  money,  that 
is,  coin,  as  some  did  in  1861,  for  which  they  are 
receiving  only  the  usual  rate  of  interest,  they  are 
neither  richer  nor  poorer  for  the  operation.  They 
have  got  public,  instead  of  private,  securities  for 
their  funds.  If  they  subsequently  loaned  mere 
credit  currency,  or  capital  at  prices  advanced  in 
consequence  of  the  depreciation  of  the  currency, 
then,  in  so  far,  they  gained  what  the  government 
lost,  or,  rather,  what  that  part  of  the  people  lost 
who  must  pay  the  debt  and  interest.  There  was  no 

32 


374  DISTRIBUTION. 

increase  of  wealth  in  consequence  of  the  increase 
of  prices,  but  merely  a  transfer  of  commodities  from 
one  party  to  another,  without  an  equivalent. 

But  "  the  national  debt  is  public  wealth."  Then 
it  follows  that  if  the  national  debt  were  repudiated, 
the  nation  would  be  poorer  by  its  full  amount.  Is 
that  so  ?  Surely  not.  The  holders  would  be  poorer, 
doubtless,  by  the  amount  of  their  bonds,  which  en- 
title them  to  interest  semi-annually,  and  final  pay- 
ment in  gold;  but  just  what  they  lost  their  debtors, 
the  public,  would  gain,  and  the  general  wealth  of 
the  nation  would  not  be  affected  to  the  amount 
of  a  dollar,  except  that  in  so  far  as  the  debt  was 
due  to  persons  abroad,  the  repudiation  of  it  would 
save  that  amount  to  the  nation.  Other  than  this, 
neither  the  security  nor  the  insecurity  of  the  national 
debt  has  the  least  effect  in  determining  the  national 
wealth. 

2d.  But,  again,  it  is  said  that  "  the  debt  is  active, 
available  capital ;"  and,  in  illustration,  it  is  said  u  that 
a  man  having,  say,  twenty  thousand  dollars  of  the 
bonds,  can  engage  in  any  kind  of  business  at  once, 
just  the  same  as  if  he  had  so  much  cash  capital." 

Now,  what  is  the  fact?  The  bonds  being  good 
securities,  the  holder  can  exchange  them  for  cash, 
and  with  this  can  obtain  any  description  of  capital 
he  may  need.  The  bonds,  then,  are  not  capital,  but 
only  the  security  upon  which  capital  may  be  had. 
If  the  holder  had  notes  against  individuals  of 
unquestionable  credit,  he  could  do  the  same.  Are 
private  notes,  then,  capital?  Surely  not. 

So  far  from  aiding  production,  a  national  debt  has 
an  effect  directly  opposite.  It  depresses  industry  by 


FOREIGN    INDEBTEDNESS.  375 

the  taxation  it  imposes,  and  reduces  its  power  to 
compete  with  other  countries. 

3d.  The  third  fallacy  is,  that  a  public  debt  gives  sta- 
bility to  government. 

Upon  what  should  the  security  of  a  government 
depend?  Evidently  upon  the  convictions  of  the 
people  that  it  is  a  good  government ;  that  it  secures 
to  them  life,  liberty,  and  the  pursuit  of  happiness. 
Any  people  who  know  they  have  such  a  government 
will  need  nothing  to  assure  their  loyalty  and  attach- 
ment. "Where  government  rests  upon  universal 
suffrage,  the  power  is  wholly  in  the  hands  of  the 
people,  and  no  law  or  constitution  can  have  any  per- 
manency that  does  not  receive  their  approbation. 
Anything  that  is  regarded  as  oppressive  and  unjust 
will  certainly  be  abolished. 

France  has  a  large  national  debt ;  yet  her  govern- 
ment has  been  revolutionized  time  and  again  with- 
out any  reference  to  that  fact,  and  without  at  all 
disturbing  the  security  of  the  rentes.  National 
debts  will  be  paid,  if  the  people  please  to  pay  them; 
and  governments  will  be  sustained,  if  the  people 
choose  to  sustain  them. 

Besides,  it  is,  and  always  will  be,  true,  that  the 
number  of  those  who  have  neither  direct  nor  indi- 
rect interest  in  the  public  debt  is  far  greater,  prob- 
ably five  to  one,  than  those  who  are  interested  as 
holders  of  the  stocks,  or  depositors  in  savings  banks 
who  have  funds  invested  to  some  extent  in  the  pub- 
lic securities  ;  and,  in  a  great  majority  of  cases,  those 
who  are  thus  indirectly  interested  are  so  only  to 
such  a  limited  extent  that  they  would  be  actual 
gainers  if  the  debt  were  repudiated,  since  they 


376  DISTRIBUTION. 

would  gain  more  from  their  consequent  exemption 
from  taxation  than  they  would  lose  by  the  non- 
payment of  the  national  debt. 

41  h.  A  fourth  fallacy  is  that  a  national  debt  in- 
sures protection  to  home  industry,  since  the  heavy 
taxation  it  causes  will,  if  laid  on  foreign  goods,  se- 
cure that  object.  Having  already  discussed  the 
question  of  protection,  we  need  not  now  enter  upon 
it,  but  remark  that  a  large  national  debt  does  not 
make  it  certain  that  there  will  be  a  high  protective 
tariff.  Great  Britain  has  the  largest  debt  of  any 
nation  in  the  world,  yet  she  has  abandoned  her  pro- 
tective system.  She  has  become  satisfied  that  such 
a  luxury  is  too  great  a  hinderance  to  her  commer- 
cial prosperity,  too  heavy  a  burden  upon  her  home 
industry. 

5th.  But,  again,  it  is  said  that  a  national  debt  is 
desirable  as  a  basis  for  a  national  currency.  That 
this  is  an  idle  assumption  we  have  already  endeavored 
to  show.  No  such  foundation  is  needed  for  any  cur- 
rency which  the  good  of  a  nation  demands.  It  is  a 
false  and  pernicious  system  which  requires  any  con- 
nection with  national  indebtedness.  Debt  is  no 
sound  basis  for  banking.  Banks  should  be  created 
to  loan  capital  that  exists,  not  debt  for  capital  that 
has  disappeared. 

6th.  We  will  briefly  notice  one  other  fallacy  in 
regard  to  a  national  debt ;  viz.,  that  the  generation 
which  contracts  it  is  under  no  obligation  to  pay  it; 
since,  having  been  contracted  for  the  good  of  the 
country,  posterity  ought  to  share,  at  least,  the  bur- 
den of  it.  What  is  the  principle  involved  in  this 
statement?  Clearly,  that  one  generation  has  the 


MODERN    FINANCIAL    SYSTEM.  377 

right  to  create  a  debt  for  such  purposes,  and  to  such 
an  extent,  as  it  deems  best,  and  impose  on  another 
the  payment  of  the  whole,  or  of  such  part  as  it  does 
not  choose  to  discharge  out  of  its  own  resources. 
Can  this  be  so  ?  Would  it  not  follow  from  this  that 
one  generation  has  the  right  to  enslave  another, 
since,  if  it  can  impose  a  tax,  it  can  enslave?  for,  to 
the  extent  of  the  tax,  it  is  slavery,  or  labor  taken 
without  compensation.  Suppose  the  tax  carried  to 
such  an  extent  as  to  consume  all  the  products  of  the 
laborer  over  that  which  is  absolutely  necessary  to 
existence.  If  the  present  generation  may  lay  a  tax 
of  ten  dollars  on  each  producer  for  all  time  to  come, 
it  may  lay  one  of  a  hundred  dollars,  or  a  thou- 
sand. If  it  may  take  away  a  fourth  of  a  man's  in- 
come, it  may  take  a  half,  or  why  not  the  whole  ? 
The  right  to  tax  posterity  at  pleasure  is  the  right  to 
establish  a  most  terrific  despotism ;  and  yet  this  is 
one  of  the  popular  sophisms  of  the  present  day. 


CHAPTER    XIII. 

RISE   AND    GROWTH    OF   THE   MODERN   FINANCIAL 
SYSTEM. 

No  large  national  debt  has  ever  been  paid,  or  in 
any  way  discharged,  except  by  repudiation.  The 
debt  of  the  old  French  monarchy  was  wiped  out 
with  the  "assignats."  The  debt  incurred  in  the 
American  Revolution  vanished  in  worthless  "con- 

flT 

OF  THE 

UNIVERSITY 


378  DISTRIBUTION. 

tinental  money."  The  present  debts  of  England, 
France,  Austria,  and  other  European  countries  are 
so  large,  the  constantly-increasing  demand  for  more 
extensive  and  costly  armaments  so  pressing,  so  abso- 
lutely overwhelming,  that  the  hope  of  any  payment 
of  the  principal  cannot  be  reasonably  indulged. 

That  general  system  of  finance,  of  which  national 
indebtedness  forms  so  important  a  fact  in  its  influ- 
ence upon  the  industrial  interests  of  mankind,  de- 
serves a  careful  consideration. 

When  William  of  Orange  succeeded  to  the  throne 
of  England,  Louis  XIV.,  then  at  the  zenith  of  his 
power,  refused  to  acknowledge  him  as  a  legitimate 
monarch,  and  espoused  the  cause  of  the  exiled 
Stuart.  War,  of  course,  followed.  But  fighting,  in 
consequence  of  the  invention  of  gunpowder,  and 
the  changes  it  gradually  introduced  into  warfare, 
had  become  a  costly  indulgence ;  a  game  which 
kings,  with  their  limited  and  uncertain  revenues, 
could  ill  afford  to  play  at,  particularly  for  a  great 
length  of  time.  War  with  one  so  powerful  as  the 
Grand  Monarque  could  not  be  safely  commenced  or 
successfully  prosecuted,  while  every  penny  must  be 
extorted  from  a  reluctant  and  now  independent 
Commons,  and  the  taxes  immediately  assessed  on 
the  large  land  or  other  property  holders  of  the  realm. 

Such  was  the  difficulty  which  King  William  en- 
countered; but,  fortunately  for  his  fame,  he  was  a 
shrewd  financier,  as  well  as  an  able  soldier.  Up  to 
this  time,  England  had  never  had  a  permanent  or- 
ganized national  debt,  a  national  bank,  or  any  regu- 
lar and  reliable  system  of  revenue.  Grants  and 
subsidies  had  been  voted  occasionally ;  duties  and 


MODERN    FINANCIAL    SYSTEM.  379 

special  taxes  had  been  imposed ;  but  these  were  not 
to  be  depended  upon. 

The  monarch  might  and  did  borrow  money  from 
time  to  time,  in  great  emergencies,  but  on  the  most 
disadvantageous  terms.  The  credit  of  the  govern- 
ment was  always  low,  because  there  was  no  regu- 
larity or  system  in  the  public  finances.  Men  had 
no  confidence  in  the  responsibility  or  punctuality 
of  the  government.  William  changed  all  this.  He 
borrowed  for  a  specified  period,  and  promised  the 
punctual  payment  of  the  interest  semi-annually,  and 
the  principal  when  due;  and  pledged  "the  public 
funds"  for  the  fulfilment  of  his  promises. 

He  negotiated  loans  and  issued  stocks.  He  granted 
annuities,  upon  the  payment  of  specific  sums.  In- 
terest and  principal  were  secured  by  a  pledge  of 
the  public  funds,  or  revenues  derived  from  specific 
sources.  This  put  a  new  face  upon  the  financial 
affairs  of  England :  but  something  further  was  de- 
sirable; viz.,  an  agency  by  which  the  national  debt 
would  be  readily  managed,  and  its  semi-annual  in- 
terest promptly  paid.  This  was  accomplished  by 
the  incorporation  of  a  national  bank,  consisting  of 
the  holders  of  the  public  stocks,  to  the  amount  of 
£1,200,000. 

One  thing  more  was  wanting;  viz.,  a  permanent 
and  sufficient  income,  to  meet  not  only  the  interest 
on  the  accumulated  debt,  but  the  current  expenses 
of  the  government,  already  large,  and  constantly 
increasing.  To  effect  this,  a  land-tax  was  estab- 
lished; small,  indeed,  in  amount,  and  upon  a  fixed 
valuation,  so  that  it  could  not  be  increased  with  the 
increasing  value  of  the  land. 


380  DISTRIBUTION. 

A  tariffof  duties  on  all  imports  was  also  introduced, 
and  an  excise  laid  upon  all  home  manufactures  and 
products.  In  short,  a  system  of  indirect  taxation  was 
adopted,  far  more  general  and  effective  than  any 
which  had  before  existed. 

Thus  was  completed  the  grand  triad  of  the  system 
of  finance,  inaugurated  by  the  English  Revolution; 
viz., — 

FUNDING,    BANKING,    AND    INDIRECT   TAXATION. 

The  immediate,  as  well  as  ultimate,  results  of  the 
new  financial  policy  are  alike  remarkable  and  worthy 
our  attention. 

1st.  The  credit  of  the  government  was  now  firmly 
established.  2d.  It  could  carry  on  war  by  borrow- 
ing money  instead  of  imposing  taxes.  3d.  This  re- 
moved the  fear  of  oppressive  taxes  upon  the  land- 
holders and  other  wealthy  persons,  because  the 
larger  part  of  the  taxation  fell  upon  the  masses  of 
the  people,  who  were  obliged  to  pay  not  in  propor- 
tion to  property,  but  consumption.  The  new  policy 
was  especially  acceptable  to  the  aristocracy,  who  at 
that  time  even  more  than  now  monopolized  those 
public  offices  whose  emoluments  and  patronage 
were  increased  by  the  increased  war  expenditures 
of  the  government. 

In  the  subjoined  diagram,  we  have  an  exact  and 
comprehensive  history  of  the  British  national  debt, 
in  its  origin  and  progress.  And  the  history  of  this 
debt  is  the  history  of  every  other  national  debt.  All 
have  originated  in  war,  have  grown  by  successive 
wars,  and  have  not  been  discharged  in  time  of  peace, 


DIAGRAM  N°.  6. 
Rise  and  Growth  of  the  British  National  Debt. 

1688  English  Revolution William  and  Mary. 


War  with  Louis  XIV. 


1697 


1713  War  of  the  Spanish 
Succession. 


Thirty  Years'  Peace. 
1739 

46 

George  II. 

War  with  Austria. 

| 

78 

George  IL 

1756  Seven  years'  war  with                 \     75 

^..-«-  rr  <.~j  TTT 

France.                                        /    '          \                    'uw»A.  «.  —  "-. 

1763 


14fi 


1775 

Peace. 

13fl 

1788 


American  Revolution. 


Peace. 


1793 


War  of  the  French 
Revolution. 


George  III. 


1846 


*  Emancipation  of  the  West  Indies. 


MODERN    FINANCIAL    SYSTEM.  383 

because  the  nations  involved  in  them  have  squan- 
dered their  resources  in  preparations  for  future  wars. 

Hence  this  diagram,  in  all  its  essential  features, 
represents  them  all  with  equal  correctness. 

In  connection  with  this  policy  of  permanent  na- 
tional indebtedness,  and  the  system  of  funding,  in- 
direct taxation,  and  paper-money  banking  growing 
out  of  it,  we  now  turn  to  consider 

THE    RESULTS   OF   THIS   FINANCIAL    SYSTEM. 

1st.  An  immense  extension  of  the  war  system.  Prior 
to  the  introduction  of  this  policy,  standing  armies 
and  armaments  were  exceedingly  limited.  Now  all 
Christendom  is  armed,  by  land  and  sea. 

2d.  Universal  and  constantly  increasing  indebtedness. 
This  is  true  of  nearly  every  country  in  the  world. 
England,  indeed,  has  not  increased  her  debt  for  the 
last  thirty  years ;  but  almost  every  other  govern- 
ment has  been  borrowing  money  from  year  to  year, 
until  many  of  them  are  as  much  burdened  by  their 
indebtedness  as  England,  because,  in  proportion  to 
their  wealth  and  resources,  they  are  as  deeply  in- 
volved. 

3d.  Impoverishment  of  the  masses.  This  is  especially 
apparent  in  England.  What  has  become  of  that 
YEOMANRY,  once  the  pride  of  the  country  ?  Their 
little  estates  have  disappeared,  have  been  swallowed 
up  by  the  terrible  system  of  taxation  to  which  they 
have  been  subjected.  The  pleasant  hedges  which 
still  surround  the  small  inclosures,  once  constituting 
the  freeholds  of  her  yeomanry,  may  yet  be  seen  in 
all  parts  of  the  country.  They  are  the  monuments 


384  DISTRIBUTION. 

of  an  industrious,  brave,  and  independent  class  of 
men,  now  extinct.  These  lands  are  indeed  tilled  by 
the  hands  of  their  descendants,  no  longer  yeomanry, 
but  peasants,  almost  the  paupers  of  the  nation.  How 
strikingly  true  this  is  may  be  seen  in  the  fact  that 
there  are  but  one-third  as  many  "  holdings"  at  the 
present  time  as  one  hundred  and  fifty  years  ago, 
while  the  wealth  and  population  of  England  have 
doubled  many  times. 

The  economy  of  a  national  debt,  under  the  modern 
financial  system,  must  always  impoverish  the  pro- 
ductive classes.  Its  entire  influence  on  them  is  op- 
pressive. It  deprives  them  of  their  honest  reward 
by  a  false  currency,  which  robs  them  of  a  large  share 
of  their  nominal  wages ;  it  imposes  upon  them, 
through  indirect  taxation,  an  undue  proportion  of 
the  public  burdens,  and  is,  in  fact,  a  stupendous 
enginery  for  depressing  them,  though  perhaps  not 
so  intended. 


CHAPTER  XIV. 

ON   THE    LAWS    OF    INHERITANCE   AND    BEQUEST. 

MEN  die,  and  the  property  they  had  acquired  or 
held  during  their  lives  must  pass  into  the  possession 
of  others.  May  the  person  who  is  about  to  leave 
the  world  say  to  whom  his  wealth  shall  immediately 
descend?  May  he  go  further,  and  say  to  whom  it 
shall  descend  for  all  coming  time?  May  he  go 


INHERITANCE   AND   BEQUEST.  385 

further  still,  and  determine  what  specific  use  shall 
be  made  of  his  wealth  forever?  Or  shall  the  laws 
of  the  State  decide  the  questions, — to  whom,  for 
what  purposes,  and  for  how  long,  the  wealth  of  de- 
ceased persons  shall  descend  ?  Does  the  world  and 
its  wealth  belong  to  the  living  or  the  dead,  or  to 
both  in  common  ?  If  to  both,  what  portion  should 
belong  to  each  ?  Which  party,  the  living  or  the 
dead,  will  most  intelligently  decide  how  wealth  can 
be  advantageously  employed  in  production,  or  in 
any  other  mode,  for  the  benefit  of  the  living? 

These  are  the  points  involved  in  the  subject  of 
Inheritance  and  the  testamentary  disposal  of  prop- 
erty, and  are  important  in  an  economical  point  of 
view,  irrespective  of  all  other  considerations.  These 
questions  have  been  practically  decided  by  the  laws 
and  institutions  of  society  in  different  ages  and 
countries.  Governments  have  always  interfered  in 
regard  to  the  estates  of  deceased  persons  to  such  an 
extent  as  to  prescribe  limitations  and  conditions. 
So  far  as  these  have  been  in  harmony  with  instincts 
of  humanity,  and  the  laws  of  value,  they  have  been 
beneficent  in  their  operation.  But  all  the  wealth, 
all  the  institutions,  all  the  interests  of  society,  should 
ever  be  regarded  as  fully  under  the  control  of  the 
existing  generation  of  men.  This  should  be  a  fun- 
damental principle  in  civil  polity ;  and,  if  law  may 
interfere  in  this  matter  at  all,  it  may  do  so  to  any 
extent  the  public  interest  shall  demand. 

It  has  been  said  that  nothing  is  more  unwise  than 
to  attempt  to  bind  posterity  with  parchment;  and 
the  more  enlightened  the  public  mind  becomes,  the 

33  - 


386  DISTRIBUTION. 

more  apparent  will  be  the  utter  folly  of  allowing  the 
past  to  govern  the  present. 

In  some  countries,  the  laws  have  not  only  provided 
for  the  manner  in  which  wealth  may  be  disposed  of 
by  testamentary  provisions,  but  have  often  ordained 
that  certain  estates  shall  be  inalienable.  Thus,  the 
landed  property  of  a  people,  seized  by  violence,  has 
been  made  a  perpetual  inheritance  to  the  favored 
parties  and  their  descendants  forever.  This  class  of 
persons  has  often  been  invested  with  the  powers  of 
government;  and  class  legislation  has  strengthened 
and  increased  what  force  or  fraud  had  achieved. 

So  far  as  a  class,  more  or  less  strictly  limited,  or 
highly  distinguished,  reaches  a  position  of  property 
or  influence  by  moral  perfections,  by  high  intel- 
lectual endowments,  or  by  successful  business  oper- 
ations, agreeably  to  the  laws  of  wealth,  and  under 
the  test  of  ordinary  competition,  it  is  not  taken  out 
of  the  principles  heretofore  laid  down.  But  so  far 
as  it  has  been  placed  arbitrarily  in  the  possession  of 
large  proprietors,  and  maintained  so  by  thwarting 
the  action  of  natural  laws,  it  is  by  that  removed  from 
the  primitive  rule  of  distribution,  and  requires  to  be 
separately  considered.  We  shall  regard  it  only  from 
an  economical  point  of  view. 

By  an  order  of  things  in  which  we  see  great 
benevolence,  no  family  or  class  is  able  permanently 
to  secure  the  integrity  of  its  estate.  Otherwise, 
property  would  tend  to  aggregate  itself,  so  as  to 
crush  competition,  and  leave  the  greater  part  of  the 
world  destitute.  As  it  is,  the  foolish  son  dissipates 
the  gatherings  of  the  wise  father,  and  alienates  the 
lands  that  have  been  annexed,  acre  after  acre,  by 


INHERITANCE    AND   BEQUEST.  387 

prudence  and  frugality.  A  single  break  in  the  suc- 
cession of  industry  and  economy  will  scatter  the  ac- 
cumulations of  ages.  This  liability  of  the  rich  is  the 
property  of  the  poor.  Just  as  surely  as  the  lapse  of 
ages  wears  down  the  craggy  mountain- tops  to  form 
the  soil  of  the  humble  valleys,  so  surely  do  aggrega- 
tions of  wealth  gravitate  every  hour  to  the  general 
level. 

To  contravene  this  provision  of  nature,  the  law  of 
the  land  often  shuts  in  these  estates  by  arbitrary 
enactment  or  judicial  interpretation,  and  so  keeps 
out  the  busy,  unrelenting  competition,  which  other- 
wise would,  sooner  or  later,  bring  the  proudest  struc- 
ture to  the  ground.  All  such  legal  arrangements 
may  be  summed  up  in — 

THE    LAWS    OF    PRIMOGENITURE   AND   ENTAIL. 

1st.  Of  the  rightfulness  of  such  laws. 

In  the  order  of  nature,  no  man  brings  with  him 
into  the  world  a  store  of  wealth  for  his  subsistence 
and  support  through  life,  or  finds  it  waiting  especi- 
ally for  him.  His  means  of  livelihood  are  to  depend 
on  the  inborn  faculties  of  appropriation,  on  the  store 
of  wealth  already  existing  from  which  these  may 
draw,  and  on  the  natural  agencies  of  production 
which  they  may  employ.  But  if  the  latter  condi- 
tions are  removed,  and  the  man  is  forbidden  access 
to  the  fields  of  labor,  he  is  condemned  to  be  desti- 
tute, in  a  greater  or  less  degree,  no  matter  how  well 
endowed,  or  how  fully  he  obeys  all  economic  laws. 
"With  these  open  to  him,  he  is  certain  of  success. 
It  matters  not  at  all,  that  all  the  wealth  of  the  world 


DISTRIBUTION. 

is  now  taken  up,  that  every  inch  of  ground  is  pos- 
sessed. Though  utterly  without  legal  claim,  he  is 
yet,  in  his  faculties  of  industry  and  appropriation, 
sure  to  become  the  owner  of  some  part  of  it,  at  least 
sufficient  for  his  wants. 

In  the  state  of  nature,  man  enters  on  life,  feeble 
and  destitute,  but  with  powers  of  absorption  and 
assimilation.  These,  not  human  charity  or  human 
justice,  award  the  world's  wealth,  and  sustain  the 
lives  for  wise  purposes  created. 

Injustice  and  mischief  are  done  by  laws  of  primo- 
geniture and  entail.  So  far  as  they  operate,  they 
shut  off  the  industry  of  the  world  (and  the  wants 
which  that  industry  must  supply)  from  its  proper 
field.  We  have  said  that  the  liability  of  wealth  to 
dissipate  is  the  property  of  the  poor.  It  is  so.  A 
man  entering  the  world  may  have  no  claim  to  any 
share  of  its  previous  gains;  but  he  has  a  claim  to  a 
chance  at  them.  This  is  the  provision  nature  has  made 
for  his  maintenance.  This  is  his  inheritance.  He 
has  a  right,  at  least  as  complete  as  the  plant,  to  get 
his  growth  and  his  support  out  of  the  soil  about 
him.  There  is  nothing  in  this  view  agrarian  or 
communistic.  It  admits  that  property  should  be 
sacred;  but  it  asserts  that  it  should  be  alienable. 
The  right  of  property  does  not  include  the  right  of 
the  wise  to  get  wealth,  and  of  fools  to  keep  it.  To 
shut  up  any  part  of  the  world,  for  the  benefit  of  one, 
is  to  rob  all  others,  not  of  it,  but  of  their  chance  to 
acquire  it  lawfully.  A  system  of  entail  dwarfs  all 
existing  industry,  so  far  as  it  operates. 

2d.  But,  besides  the  general  objections  to  such  a 
system  on  the  grounds  of  justice,  we  meet  cer- 


INHERITANCE    AND    BEQUEST.  389 

tain    considerations    of    expediency    that    deserve 
notice. 

(1)  The  capital  thus  kept  together  by  laws  for- 
bidding alienation  is  often  so  large  that  it  cannot 
be  managed  by  individuals  for  the  best  economic 
advantage.    Of  course,  a  government  might  provide 
for  the  preservation  of  properties  not  excessive.   But 
it  is  not  such  that  have  been  made  perpetual ;  and 
there  can  be  no  occasion  to  lock  up,  in  this  way, 
moderate  estates.    Great  accumulations  will  be  made 
under  any  free  and  peaceful  government;  and  it  is 
neither  the  right  of  government,  nor  the  interest  of 
society,  to  interfere  to  scatter  them.     The  sacred- 
ness  of  property  makes  a  greater  demand  than  the 
mere  productiveness  of  capital.     Besides,  this  has 
been  collected,  and  is  kept  together,  by  economic 
virtues,  which  should  ever  receive  their  natural  re- 
ward.   But  it  is  not  in  the  order  of  things  that  such 
mountains  of  wealth  should  remain. 

(2)  Such  aggregations  of  wealth  destroy,  in  great 
part,  the  desires  which  lie  at  the  root  of  all  activity. 
The  spring  of  industry  is  want.     Let  us  take  into 
calculation  the  sum  of  one  million  of  dollars.     It 
cannot    be   doubted   that   this,    as   a   reproductive 
agency,  would  be  quickened  by  more  desires  if  in 
the  hands  of  one  thousand  men,  than  if  in  the  hands 
of  only  one  hundred.     Certainly  the  necessities  of 
each  will  be  more  pressing:  why  not  his  activities 
more  aroused  ?   How  much  mightier,  then,  the  cur- 
rent of  energy  with  which  the  greater  body  moves 
on  to  its  object! 

On  the  other  hand,  if  we  suppose  the  sum  to  be 
vested  in  the  possession  of  one  person,  we  shall  have 

33* 


390  DISTRIBUTION. 

the  desires  greatly  weakened.  This  is  not  the  man 
who,  "from  the  rising  of  the  lark  to  the  lodging  of 
the  lamb,"  toils  with  unrelaxed  nerve;  to  whom 
.every  gain  is  needful  bread ;  from  whom  every  sav- 
ing removes  a  pain. 

Erskine,  as  his  courage  sank  in  dismay  on  his 
first  pleading,  seemed  "to  feel  his  children  pulling 
at  his  gown,"  and  so  took  heart  to  go  on.  Every- 
where it  is  the  hands  of  the  little  ones,  plucking  at 
the  sleeve,  that  elevates  labor  into  heroism. 

(3)  Such  aggregations  draw  off  an  undue  propor- 
tion of  wealth  into  luxuries.  This  is  the  necessary 
consequence  of  what  has  just  been  exhibited;  while 
its  own  results  will  appear  more  specially  in  the  de- 
partment of  "  Consumption." 


BOOK    V. 


CHAPTER  L 

DIVISIONS    OP   THE    SUBJECT. 

CONSUMPTION  is  the  use  of  wealth.  It  is  precisely 
the  converse  of  production.  If  production  were, 
on  the  one  hand,  the  creation  of  an  article,  consump- 
tion would  be  its  annihilation.  But  as  human  labor 
cannot  bring  one  atom  into  existence,  so  neither  can 
it  return  one  to  nothingness.  Since  man's  efforts 
expend  themselves  in  arranging  matter  into  certain 
desirable  forms,  so  man's  satisfactions  do,  directly  or 
indirectly,  soon  or  late,  exhaust  those  properties  or 
peculiarities  of  form  that  have  been  imposed  on 
matter ;  and  leave  it,  in  the  act  and  for  the  time, 
vacant  of  the  elements  of  value.  This  result  is 
reached  in  the  consumption  of  wealth. 

There  can  be  no  use  of  wealth,  without  this 
change  of  form ;  while  the  merest  change  of  form 
oftentimes  answers  all  the  conditions  of  consump- 
tion. This  consumption  may  be  for  any  purpose, — 
for  luxury,  wastefulness,  or  reproduction  ;  may  be 
within  any  time, — from  the  slow  wear  of  the  pre- 

(391) 


392  CONSUMPTION. 

eious  metals  to  a  perishing  that  is  almost  simulta- 
neous with  the  making;  maybe  in  any  degree, — 
from  a  total  disappearance,  as  when  wood  is  burned, 
to  a  change  which  the  most  practised  eye  can  hardly 
detect. 

The  seed  is  consumed  when  it  is  planted  in  the 
ground  to  bring  forth  one  hundred-fold.  The  cigar 
is  consumed  when  it  goes  off  in  smoke. 

Such  consumption  of  wealth  is  constantly  taking 
place  in  industrial  society;  and  in  this  light  we  see 
the  great  importance  of  the  principles  which  govern 
in  this  department:  what  momentous  decisions  are 
made  at  each  change  of  the  form  imposed  by  labor 
on  matter;  how  the  wealth  of  the  world  goes  up  or 
down,  with  the  new  direction  given  it. 

It  would  be  impossible  to  give  a  catalogue  of  all 
the  distinct  acts  of  consumption  that  take  place  in 
the  narrowest  field  and  in  the  shortest  time.  It 
might  be  even  impossible  to  decide  distinctly  when 
any  one  of  them  actually  began  or  ended;  so  that, 
if  the  science  depended  on  determining  them  accu- 
rately, we  should  be  forced  to  close  our  inquiries  at 
once,  as  useless.  No  eye  can  detect  their  processes; 
no  thought  can  reach  down  to  the  real  spring  of 
economical  life.  But  we  can  find  in  the  general 
results,  as  they  come  out  in  national  or  individual 
experience,  enough  for  practical  instruction  and 
guidance. 

The  consumption  of  wealth  may  be  regarded  as 
of  three  kinds, — mistaken,  luxurious,  and  public 
consumption.  We  shall  speak  of  them  in  that 
order. 


MISTAKEN   CONSUMPTION.  393 


I.    MISTAKEN   CONSUMPTION. 

What  shall  we  do  with  that  large  class  of  indus- 
trial actions  which  bring  no  reward  to  those  who 
perform  them  ? 

We  find  labor  and  capital  applied  with  the  pur- 
pose of  reproduction,  but  without  result.  And  this 
not  occasionally;  but  the  share  of  failures  can  almost 
be  determined  with  certainty,  and  is  found  to  bear 
no  inconsiderable  proportion  to  business  enterprise 
the  world  over.  Indeed,  in  some  occupations,  entire 
success  forms  the  exception. 

These  cases  of  mi&taken  industry  would  present 
very  few  questions  but  for  the  secondary  uses  to 
which  we  sometimes  find  them  applied.  Gibbon 
describes  the  towers,  citadels,  and  palaces  of  Rome 
as  built  on  the  foundations  of  the  ancient  temples, 
theatres,  and  arches.  We  can  draw  a  figure  thence 
to  our  modern  industry.  The  fortunes  of  one  gen- 
eration often  rise  from  the  failures  of  that  which 
went  before.  If  we  trace  the  history  of  many  of 
the  most  flourishing  establishments,  we  shall  find 
them  resting  at  last  on  some  great  outlay  of  capital, 
or  expenditure  of  labor,  that  ruined  some  man  or 
corporation,  and  finally  went  to  pay  taxes  or  office 
rent.  Such  has  been  the  fate  of  many  of  the  rail- 
roads of  the  United  States;  so  much  so,  that  it  has 
passed  into  a  proverb  that  such  stock  must  be  sunk 
once  to  pay  at  all. 

The  same  thing  occurs  frequently  in  the  course  of 
individual  enterprises.  Men  undertake  great  mat- 
ters, launch  into  immense  expenses,  and,  after  sink- 


394  CONSUMPTION. 

ing  the  full  amount  of  their  capital  and  credit,  stop 
hopelessly.  The  works  stand  idle  and  melancholy 
for  years,  till  some  new  industry  or  some  shrewder 
manager  takes  them  at  half  cost  or  for  nothing,  and 
gets  a  fortune  out  of  them. 

When  one  of  the  later  emperors  would  build  a 
monument  of  his  achievements,  he  was  forced  to 
use  fragments  of  older  architecture;  and  so,  history 
tells  us,  the  head  of  Trajan  frowned  from  the  arch 
of  Constantiue.  Many  a  modern  fortune  is  pieced 
out  of  the  wreck  of  earlier  industry. 

1st.  Capital  is  fallible  in  its  calculations.  Plau- 
sible schemes,  based  on  views  that  are  partial  or 
temporary,  draw  even  the  ablest  financiers  into  such 
investments.  It  would  be  out  of  reason  that  such 
errors  should  not  be  committed,  even  with  the  keen 
scent  of  personal  advantage  and  trained  observation. 

2d.  Extravagance  is  a  frequent  cause  of  business 
failure.  Men,  in  originating  enterprises,  sanguine  in 
feeling,  and  exhilarated  by  the  possession  of  large 
capital,  almost  invariably  indulge  in  a  scale  of  outlay 
which  the  return  does  not  justify.  They  find  it  un- 
pleasant or  undignified  to  omit  anything  from  the 
completeness  of  preparation  out  of  considerations 
of  economy.  The  result  is,  the  expense  of  starting 
<  rags  on  them  through  the  whole  course,  and  perhaps 
r  ins  them. 

3d.  Another  reason  is  found  in  those  accidents  or 
great  developments  which  transfer  business  from  one 
scat  to  another,  just  as  wells  give  out  with  no  appa- 
rent cause.  The  axis  of  commerce  shifts  its  place, 
and  leaves  tropical  bones  and  tropical  fruit  high  on 
the  northern  hills. 


LUXURIOUS   CONSUMPTION.  395 

Whatever,  from  any  cause,  fails  to  recompense  its 
outlay,  though  it  may  still  have  some  utility,  is  to  be 
considered  as  so  much  added  to  the  common  agencies 
of  society.  If  anything  comes  out  of -it,  this  is  to  be 
counted  as  so  much  received  from  the  gratuitous 
gifts  of  nature.  Whoever,  by  shrewdness  or  chance, 
has  possession  of  them,  is  fortunate.  A  canal  or 
railroad,  whose  stock  has  been  once  sunk,  stands  in 
just  the  same  relation  to  political  economy  as  do 
rivers  and  natural  causeways,  which  facilitate  travel, 
and  render  production  easy,  but  are  not  capital,  in 
the  scientific  sense  of  the  term. 

II.    LUXURIOUS    CONSUMPTION. 

Luxury, — what  is  it,  and  what  are  its  effects,  eco- 
nomically considered  ?  Noah  Webster  defines  it  as 
"a  free  or  extravagant  indulgence  in  the  pleasures 
of  the  table,  as  in  rich  wines  and  expensive  diet,  or 
delicious  food  and  liquors;  voluptuousness  in  the 
gratification  of  the  appetites,  or  the  free  indulgence 
in  costly  dress  and  equipage."  We  must  give  a  far 
wider  definition  for  our  purposes,  in  the  science  of 
which  we  treat.  A  fine  house  is  certainly  as  much 
a  luxury  as  fine  clothes  or  costly  wines;  so  are 
statuary  and  paintings;  so  are  a  vast  number  of 
articles  of  common  consumption  in  every  condition 
of  life.  It  is  quite  clear,  too,  that  what  would  be 
esteemed  a  great  extravagance  in  the  royal  establish- 
ment of  Dahomey  would  be  far  otherwise  in  the 
humblest  dwelling  of  Europe. 

It  is  apparent  that  a  specific  definition  of  the  term 
"  luxury"  is  impossible ;  yet  we  can  give  a  general 


396  CONSUMPTION. 

formula  that  will  be  sufficient  for  our  purpose 
Luxury  in  the  community  is  indulgence  in  those 
expenditures  which  are  beyond  the  reach  of  the 
great  mass  of  the  people :  luxury  in  the  individual 
is  indulgence  in  those  expenditures  which  are  be- 
yond the  strict  necessities  of  maintenance,  according 
to  the  customs  of  the  social  or  economic  class  to 
which  he  belongs. 

Of  course,  this  standard  will  vary  in  different 
countries,  the  inhabitants  of  one  being  able  to  com- 
mand many  indulgences  which  are  denied  to  others. 
The  luxuries  of  Europe  are  daily  fare  in  Asia,  while 
articles  of  common  decency  in  an  Irish  hovel  are 
unknown  in  the  court  of  Delhi.  Nor  only  this  :  the 
scale  of  luxury  changes  with  every  year.  Those 
articles  which  in  one  generation  indicate  wealth, 
become  common  property  in  the  next.  This  results 
from  the  general  progress  of  society  and  the  constant 
advance  of  economic  powers.  As  production  rises, 
it  covers  the  monuments  of  earlier  taste  or  grandeur. 

The  ground  of  luxurious  consumption  is,  perhaps, 
best  determined  by  the  boundaries  of  its  neighbors. 
It  embraces  nothing  that  is  spent  in  the  purpose  of 
a  reproduction,  more  or  less  immediate  and  direct. 
The  necessary  consumption  of  a  people  depends 
chiefly  on  absolute  wants,  is  not  greatly  a  matter  of 
choice,  fancy,  or  taste  ;  but  its  luxuries,  those  things 
which  it  may  or  may  not  have,  depend  entirely,  for 
their  kind  and  degree,  upon  moral  and  intellectual 
characteristics.  Consequently,  they  furnish  an  index 
of  the  national  civilization. 

1st.  Do  luxuries  directly  encourage  industry? 

We  shall  reach  the  truth  of  this  by  illustrations. 


LUXURIOUS   CONSUMPTION.  397 

When  William  IV.  came  to  the  throne  of  England, 
he  erected  a  tower  at  one  of  the  entrances  of  the 
palace  where  he  made  his  residence.  It  cost 
$500,000.  There  was  no  pretence  of  utility  what- 
ever in  the  building.  It  was  pure  luxury.  It  was 
an  elegant  structure.  It  gratified  the  monarch's 
taste.  It  was  highly  ornamental  to  the  castle  and 
the  grounds.  What  was  the  economical  effect? 
The  erection  gave  employment  to  mechanics  and 
laborers;  it  made  a  call  for  materials  and  architec- 
tural skill ;  it  made  trade  brisk  in  the  neighborhood. 
Was  it  therefore  beneficial?  Suppose  it  had  ac- 
corded more  with  his  majesty's  views  to  take  the 
same  money,  and  with  it  erect  two  hundred  cottages 
on  the  crown  lands,  at  an  expense  of  $2500  each. 
This  would  have  called  for  as  much  labor  and  ma- 
terials as  the  tower;  would  have  given  as  great  an 
impetus  to  trade.  At  the  same  time,  it  would  have 
brought  into  existence  comfortable  residences  for 
the  families  of  two  hundred  laborers.  If  the  cot- 
tages were  rented  at  a  moderate  rate,  the  income 
would  be  equal  to  a  fair  interest,  and  the  dwellings 
would  stand  for  generations,  a  valuable  property, 
conferring  happiness  and  comfort  on  a  thousand 
people. 

But  there  is  more  to  come.  We  said,  "  take  the 
same  money."  What  money  ?  Whose  money  ? 
Now,  in  arguments  for  govermental  luxury,  it  is 
always  assumed  that  the  money  is  in  the  treasury. 
But  how  came  the  money  into  the  public  coffers? 
Who  furnishes  the  money?  The  sober,  steady  in- 
dustries of  the  country.  The  money  to  make  King 
William's  tower  came  from  Leeds  and  Sheffield  and 

34 


398  CONSUMPTION. 

Manchester.  It  encouraged  one  class  of  artisans. 
True.  Whom  did  it  discourage  ?  A  class  that  ia 
always  out  of  sight  in  such  reckonings, — the  class 
that  pays  the  taxes. 

Then,  so  far,  it  only  amounts  to  changing  the 
capital  of  the  country  from  one  hand  to  another ; 
employing  one  class  by  turning  off  another;  a  change 
that  is  never  made  without  distress  and  loss. 

There  is  still  more  to  be  said.  If  the  wealth  had 
remained  in  the  hands  of  the  manufacturer,  say,  it 
would  have  been  capital,  and  supported  workmen 
this  year.  So  has  the  tower.  But,  in  the  latter  use, 
next  year  it  will  be  no  longer  reproductive;  while, 
in  cotton-spinning  or  land-draining,  it  would  grow 
with  every  day,  and  furnish  unfailing  employment 
for  labor.  A  thousand  dollars  spent  in  luxury  will 
pay  a  thousand  dollars  of  wages  (less  certain  little 
items).  A  thousand  dollars  employed  as  capital  will, 
in  ten  years,  pay  twenty  thousand  dollars  of  wages. 
Such  is  the  difference  in  results. 

Wealth,  employed  as  capital,  is  an  annuity  made 
out  in  the  name  of  the  laborer,  and  good  for  life. 
There  is  no  possible  case  in  which  its  employment 
for  purposes  of  luxury,  as  opposed  to  reproduction, 
can  be  said  directly  to  advantage  industry. 

2d.  Do  luxuries  indirectly  encourage  industry? 
Here  we  must  turn  sharply  on  our  previous  decision, 
and  see  a  further  meaning  in  luxurious  consumption 
than  first  appeared.  Unquestionably,  a  wholesome 
luxury  is  one  of  the  most  important  principles  of 
production.  What  is  it  that  kindles  the  desire  of 
acquisition;  that  keeps  the  hand  strong  to  labor? 
Is  it  not  the  hope  to  spend  ?  For  what  else,  the 


LUXURIOUS    CONSUMPTION.  399 

wretched  miser  excepted,  do  men  toil  early  and  late  ? 
It  is  the  promise  of  future  enjoyments  that  calls  out 
kalf  the  work  of  the  world. 

There  is  one  practical  limitation  of  this  principle, 
which  is  of  great  social  and  economical  importance. 
It  arises  from  the  relative  position  of  those  who  do, 
and  those  who  as  yet  cannot,  indulge  in  luxurious 
consumption.  If  a  few  are  very  rich,  and  the  many 
very  poor,  the  expenditures  of  the  former  have  very 
little  effect  on  the  condition  of  the  latter.  Since 
these  cannot  aspire  to  the  enjoyment  of  their  supe- 
riors, their  ambition,  instead  of  being  excited,  is  de- 
pressed. If,  on  the  contrary,  the  interval  between 
the  classes  is  narrow  and  the  differences  moderate, 
the  luxuries  of  the  rich  exert  strong  and  increasing 
desires  in  those  who  are  less  wealthy.  These  desires 
create  wealth. 

The  luxury  of  European  courts  has  no  elevating  in- 
fluence upon  the  masses  :  quite  otherwise.  Robbed 
to  furnish  the  means  of  others,  they  are  hopeless 
of  ever  attaining  to  such  fortune  themselves.  But 
where  the  grades  of  society  are  fixed  only  by  dif- 
ferences of  natural  endowment,  and  so  are  moderate 
and  regular,  rising  by  easy  steps,  the  entire  popula- 
tion becomes  inspired  with  the  purpose  of  reaching 
a  higher  position. 

We  have,  then,  attained  the  principle,  that  luxu- 
rious consumption,  while  it  directly  gives  no  help  to 
industry,  but  rather  spends  in  one  hour's  enjoyment 
the  provision  of  months  or  years,  may  yet,  by  its  in- 
fluence on  man's  desires,  create  a  productive  force 
which  shall  make  its  extravagance  seem  economy, 
its  waste  appear  frugality  itself.  But  this  is  only 


400  CONSUMPTION. 

true   of  harmonious,   temperate,   and   well-propor- 
tioned luxury. 

Such  is  luxurious  consumption,  in  its  definition 
and  its  general  principles.  We  shall  further  discuss 
the  degree  to  which  it  is,  or  may  be,  carried  in  any 
community. 


CHAPTER    II. 

ON   THE    DEGREE    OF   LUXURIOUS    CONSUMPTION. 

WE  mistake,  if  we  attribute  luxuries  to  the  rich 
alone.  It  is  estimated,  on  the  best  authority,  that 
of  the  taxes  paid  by  the  laboring  poor  of  England, 
out  of  every  twenty-one  shillings,  eleven  shillings 
and  fourpence  were  paid  for  what  was,  in  the  eco- 
nomic view,  not  necessary,  and,  in  the  sanitary  view, 
not  beneficial.  If  we  estimate  the  amount  expended 
for  luxuries  by  the  corresponding  class  in  our  own 
country,  we  shall  find  it  as  much  greater  as  nature 
is  more  liberal,  labor  more  free,  taxes  lighter,  and 
the  working-man  more  ambitious  and  sanguine; 
while,  if  we  turn  to  France,  we  find  the  proportion 
much  smaller;  yet  even  here  the  laborer  has  his 
holiday,  and  his  theatre  or  fair. 

Paradoxical  as  it  may  sound,  it  may  be  said  that 
a  certain  amount  of  luxuries  forms  a  part  of  the 
necessary  wages  of  the  laborer  in  these  countries. 
Indeed,  it  is  true  of  all  countries;  for  the  human 


LUXURIOUS    CONSUMPTION.  401 

mind  and  the  human  body  will  have  rest  and  recre- 
ation in  some  form.  Man  is  not  all  laborer.  Some 
indulgence  is  the  demand  of  that  part  of  his  nature 
which  looks  out  on  another  field  than  production 
and  accumulation.  And  in  this  light  we  see  the 
vast  importance  of  such  social  and  moral  influ- 
ences as  shall  determine  the  laboring  classes  to 
those  relaxations  and  amusements  which  really 
refresh  both  mind  and  body,  and  elevate  the  whole 
twne  of  being. 

National  taste  determines,  in  a  great  measure,  the 
demands  of  wages.  It  is  only  required,  by  our  present 
object,  that  we  take  a  good  look  at  the  luxuries  of 
the  poor;  not  by  any  means  grudgingly.  Indeed, 
we  may  ask  why  laborers  are  not  everywhere  allowed 
more  time  and  means  for  enjoyment,  outside  the  dull 
routine  of  work  and  the  dry  subsistence  of  life.  It 
is  a  wise  and  Christian  statesmanship  that  seeks 
to  enlarge  the  simple  pleasures  of  the  poor.  As 
the  intelligence  of  laborers  increases,  and  their 
political  franchises  extend,  they  will  assert  a  larger 
share  of  the  products  of  industry;  and  very  much 
of  this  will  go  into  what  we  call,  not  invidiously, 
luxuries. 

But  it  is  with  regard  to  the  richer  classes  that  the 
question  of  luxuries  becomes  especially  important. 
The  amount  of  wealth  directed  to  these  objects  can 
hardly  be  over-estimated. 

The  excise  and  customs  authorities  of  Great  Britain 
recently  made  an  attempt  to  ascertain  the  shares  of 
certain  articles  consumed,  severally,  by  three  classes 
into  which  they  divided  the  population  of  the 

34* 


402 


CONSUMPTION. 


kingdom.     The   result  is   shown  in   the  following 
table  :* 


Class. 

1st.  Upper  . 
2d.  Middle  . 
3d.  Lower   . 

Persons. 

.     1,000,000 
.     9,000,000 
.  18,000,000 

Tea  consumed. 
17£  per  cent. 
38 

Sugar  consumed. 
22£  per  cent. 
38          « 
39J        " 

28,000,000 


100 


100 


Iii  these  simple  articles,  which  are  almost  included 
in  the  strict  necessaries  of  life,  we  see  the  great  ex- 
cess of  the  expenditure  of  the  upper  classes.  When 
we  rise  to  take  in  services  of  plate  and  sets  of  jewelry, 
galleries  of  pictures  and  parks  of  deer,  studs  of  horses 
and  packs  of  hounds,  we  shall  be  impressed  with  the 
immensity  of  outlay  devoted  to  the  luxuries  of 
society. 

1st.  "What  are  the  causes  that  set  wealth  apart  for 
luxury? 

(a)  The  most  essential  is  the  existence  of  a  surplus. 
Other  things  equal,  the  degree  of  luxury  will  be  as 
the  surplus.  The  latter,  however,  will  depend  not 
so  much  on  the  general  mass  of  wealth  as  on  its 
apportionment  among  producers. 

(6)  The  desire  to  gain  and  the  desire  to  spend  are 
antagonistic.  They  meet  in  every  act  of  life,  and 
one  or  the  other  must  have  its  way.  Luxury  is  the 
victory  of  the  latter  passion.  The  mere  possession 
of  a  surplus  is  not  enough. 

2d.  To  what  extent  can  wealth  be  devoted  to 
luxury  ? 

Gibbon  gives  countenance  to  the  theory,  that  no 
state  can,  without  soon  becoming  exhausted,  sup- 

*  Levi  <  n  Taxation. 


LUXURIOUS    CONSUMPTION.  403 

port  more  than  a  hundredth  part  of  its  population  in 
arms  and  idleness.  This  is  to  be  understood  as  a 
hundredth  part  of  the  population,  taken  out  of  the 
able-bodied  males;  say,  a  twentieth  part  of  these. 
The  estimate  is.  interesting,  and  has  a  certain  share 
of  truth;  but  its  form  shows  it  to  be  a  very  rude 
one.  Does  it  make  no  difference  whether  this 
portion  is  simpty  unproductive  or  destructive? 
Does  it  make  no  difference  whether  these  idlers  are 
maintained  in  the  dreamy,  half-naked  indolence  of 
Asiatics,  or  in  war  and  the  luxury  of  courts?  no 
difference  whether  the  general  production  of  the 
country  is  large  or  small ;  whether  the  wants  of  the 
people  and  the  necessities  of  government  are  few 
and  simple,  or  many  and  great ;  whether  rice  enough 
for  a  year  can  be  had  by  the  labor  of  two  weeks,  as 
in  India,  or  a  bushel  of  grain  costs  the  labor  of 
eleven  days,  as  in  Lapland  ? 

It  is  in  this  light  that  we  see  the  impossibility  of 
fixing,  for  all  nations,  all  climates,  all  ages,  a  com- 
mon proportion  of  luxury  that  can  be  maintained, 
without  bringing  down  the  standard  of  industrial 
well-being.  At  the  same  time,  it  is  plain  that  for 
each  nation,  at  any  time,  there  must  be  a  point  be- 
yond which  wealth  cannot  be  spent  in  enjoyment, 
or  time  in  idleness,  without  first  oppressing  the 
laboring  class  by  hard  exactions,  and  afterwards  de- 
basing the  entire  state. 

OF   LEARNING    AND   ART. 

These,  in  the  economic  view,  may  have  value,  and 
so  may  be  produced,  exchanged,  distributed,  and 
consumed.  The  reward  they  receive,  the  price  they 


404  CONSUMPTION. 

bring,  is  in  no  sense  due  to  them  in  their  own  right, 
because  they  are  true,  beautiful,  or  good;  but  arises 
legitimately  out  of  the  desires  they  gratify,  and  the 
labor  they  cost.  It  is  the  appreciation  of  a  service 
rendered.  That  reward  will  vary  in  form  and  de- 
gree, at  every  stage  of  society. 

While  the  rewards  of  learning  and  art  are  uncer- 
tain, and  apparently  wayward,  they  have  yet,  from 
the  earliest  days,  had  a  place  with  the  most  substan- 
tial industries.  Whatever  may  be  true  of  the  quality 
of  such  productions,  the  amount  of  labor  bestowed 
on  them  obeys  strictly  the  same  laws  of  supply  and 
demand  which  govern  the  growth  of  cotton  or  wheat. 
Economical  science  has  no  occasion  to  take  them 
out  of  the  same  category.  When  one  man  gives 
his  efforts  to  any  work  of  this  character,  and  finds 
one  other  who  has  a  desire  for  it,  that  work  begins 
to  have  value,  comes  hereby  into  the  domain  of 
political  economy,  and  must  submit  to  its  principles. 
Milton,  chaffering  for  the  price  of  "Paradise  Lost," 
forms  no  royal  exception  to  the  sovereignty  of  the 
empire  he  has  entered. 

What  is  the  character  and  effect  of  such  consump- 
tion ?  This  is  a  question  doubly  interesting,  having 
an  importance  to  general  scholarship,  as  well  as  to 
our  immediate  science.  Of  course,  learning  and 
art  have  not  necessarily  to  establish  an  economic 
usefulness,  in  order  to  justify  their  pursuit.  In  their 
own  names,  they  have  sovereignty,  and  claim  hom- 
age. But  there  is  an  economic  relation  which  we 
cannot  overlook,  and  which  must  affect,  somewhat, 
the  place  which  they  shall  be  accorded  in  the  world. 
In  brief,  their  effect  upon  industry  may  be  defined 


LUXURIOUS    CONSUMPTION.  405 

as  follows :  So  far  as  they  give  dignity  to  human 
aspirations,  furnish  new  objects  to  human  desires, 
enlarge  ambition,  develop  the  useful  sciences,  and 
suggest  the  application  of  new  powers,  as  the  tele- 
graph, the  locomotive,  and  the  magnet;  so  far  as 
they  unite  and  harmonize  social  and  political  divi- 
sions,— they  are  of  inestimable  value;  and  such 
consumption  of  wealth  as  rewards  and  encourages 
them  is  seed  thrown  into  a  soil  more  grateful  than 
any  land  of  fable  or  story.  But  so  far  as  learning 
and  art  tend  to  produce  that  unmanly  sentimentalism 
which  shrinks  from  dry  details,  present  duty,  and 
simple  fact;  that  mawkish  cosmopolitanism,  which 
weakens  each  nationality,  without  promoting  the 
union  of  all ;  that  softening  of  the  mental  fibre, 
that  dissolution  of  the  will,  which  makes  man  the 
slave  of  his  circumstances,  and  even  of  his  fellows; 
and,  worst  of  all,  that  selfish  fastidiousness  which 
shuts  itself  in  from  human  activities  and  social  alli- 
ances, to  dwell  in  dreams  and  idle  imaginations, 
whether  of  philosophy  or  art, — why,  in  so  far,  we 
must  call  such  an  employment  of  time  and  labor, 
not  merely  unprofitable,  but  mischievous,  consump- 
tion. 

SUMPTUARY    LAWS. 

No  subject  stands  so  peculiarly  related  to  scientific 
inquiry  as  this.  There  is  no  scheme  of  govern- 
mental action  which  can  present  a  more  clear  and 
convincing  argument,  drawn  from  the  nature  of 
things,  and  even  from  experience,  prior  to  actual 
legislation  ;  while  none  has  been  more  effectually 
exploded  by  trial.  There  seems  to  be  a  perfect 


406  CONSUMPTION. 

reason  for  sumptuary  laws ;  yet  the  general  sense  of 
civilization  has,  after  full  experiment,  settled  deci- 
sively against  them. 

It  is  impossible  to  look  about  the  smallest  com- 
munity, without  being  grieved  at  the  manner  in 
which  much  of  its  labor  and  wealth  is  expended. 
What  enlightened  person  can  pass  once  through  any 
street  of  human  habitation,  without  seeing  very 
many  instances  of  folly,  extravagance,  perversion, 
and  indolence,  which  are  wasting  the  best  gifts  of 
God  and  the  fairest  hopes  of  man  ?  And,  when  this 
view  is  carried  out  to  all  the  communities  of  a  nation, 
it  is  not  strange  that  philosophers  and  statesmen 
have  come  to  believe  most  earnestly,  that  by  salu- 
tary curbs  on  expenditure  and  spurs  to  exertion,  by 
reforming  dress,  diet,  equipage,  and  establishment, 
they  could  multiply  manifold  the  comforts  of  the 
people,  the  resources  of  the  state,  and  the  means  of 
social  and  moral  culture. 

And  yet  nothing  has  more  utterly  and  conclu- 
sively failed.  It  is  not  that  the  evil  is  imaginary ; 
for  enough  wealth  and  power  are  wasted  to  make 
every  human  being  comfortable  and  happy.  It  is 
not  that  the  state  of  things  is  unsusceptible  of  re- 
formation; for  the  matter  is  one  wholly  of  human 
choice,  and  open  to  the  control  of  the  public 
sanctions. 

Why,  then,  has  law,  acting  to  this  end,  failed  of 
its  purpose  so  universally  and  so  manifestly,  that 
such  enactments  are  hardly  ever  proposed  at  the 
present  day,  even  by  the  most  sanguine  of  philan- 
thropists ? 

It  is  difficult  to  give  a  full  and  satisfactory  expla- 


LUXURIOUS    CONSUMPTION.  407 

nation.  One  reason  is,  that  such  enactments  are 
very  easy  of  evasion.  Expenditure  is  not  a  matter 
that  submits  readily  to  inspection  and  proof.  The 
interest  of  the  producer  and  of  the  desire  of  the  con- 
sumer are  against  the  enforcement  of  the  law.  Then, 
again,  luxury  can  take  on  so  many  forms,  can  slip 
so  readily  from  the  grasp  of  definitions  and  specifi- 
cations, that  the  law  becomes  a  greater  trouble  to 
its  officers  than  to  its  offenders. 

The  grand  reason,  however,  is  that  it  is  against 
human  nature ;  and  with  this  we  may  fairly  close 
our  objections. 

But  all  these  furnish  no  conclusion  against  the 
regulation  of  public  morals  and  manners  in  things 
that  affect  the  happiness  and  safety  of  the  commu- 
nity. It  is  no  longer  legislation  to  supplement  the 
wisdom  of  the  individual  or  instruct  industry.  It 
becomes  the  defence  of  the  general  good.  It  is  not 
a  breach  of  personal  rights,  but  the  safeguard  of 
public  liberty.  If  there  is  any  habit  or  practice 
which  brings  disease  and  suffering  and  disorder, 
which  abridges  the  power  of  labor  and  the  span  of 
life,  which  inflicts  misery  upon  the  innocent  and 
unoffending,  which  entails  expense  upon  the  whole 
community  for  the  charge  of  pauperism  and  the  pun- 
ishment of  crime,  there  can  be  no  doubt  of  the  right 
and  duty  of  the  people  to  protect  themselves,  through 
the  power  of  their  government,  by  the  most  severe 
and  efficient  laws  that  can  be  devised.  To  deny  this 
is  to  deny  the  validity  of  government  itself. 


408  CONSUMPTION. 


III.    PUBLIC    CONSUMPTION. 

There  is  an  economical  reason  for  government. 
Without  the  strong  arm  of  the  public  force,  men 
could  not  work  unmolested,  or  retain  the  results  of 
their  labor.  Without  law,  production  would  be  hin- 
dered directly,  by  the  confusion  of  society  and  the 
interruption  of  violence.  But  far  more  serious  would 
be  the  secondary  effects  on  industry.  All  motives 
to  the  accumulation  of  wealth  would  be  withdrawn, 
by  the  insecurity  of  property.  Its  possession  might 
even  become  an  object  of  terror. 

To  what  share  is  government  entitled  in  the  gen- 
ral  production  ?  If,  as  we  have  seen,  it  is  the  indis- 
pensable condition  of  all  wealth,  it  can  rightfully 
claim  a  part  of  all  wealth  ;  and  that  part  will  be,  at 
the  least,  enough  to  sustain  itself  in  this  economical 
function.  It  owns  just  as  much  of  this  wealth  it  has 
helped  to  create  as  is  necessary  to  continue  itself; 
for,  without  this,  wealth  could  not  be.  The  absolute 
necessities  of  government,  then,  afford  the  minimum 
measure  of  its  share  in  wealth. 

Has  government  no  right  to  more  than  what  is 
essential  to  its  support  in  this  economical  function  ? 
Its  industrial  work  embraces  a  wider  field  than  ap- 
pears in  the  simple  statement.  In  America,  educa- 
tion is  required  as  a  part  of  the  public  police  ;  and 
onr  eminent  statesmen  have  estimated  the  outlay  ot 
schools  and  colleges  cheap,  in  the  results  on  order 
and  security.  Government  may  employ  means  of 
influence,  numerous  and  remote,  all  in  the  interest 
of  peace. 


PUBLIC    CONSUMPTION.  409 

But  has  it  no  right  to  property  beyond  this? 
Plainly  it  has.  We  must  not  be  as  stringent  in  our 
scientific  views  as  young  Gobbo,  and  complain  that 
u  this  making  of  Christians  will  raise  the  price  of 
pork."  Political  economy  recognizes  that  humanity 
lias  other  interests  than  wealth,  and  respects  the 
claim  of  government  to  duties  and  services  for  the 
sake  of  a  moral  good. 

Having  defined  the  right  of  government  econom- 
ically to  participate  in  wealth,  two  considerations 
naturally  precede  the  discussion  of  methods: 

1st.  Government  should  undertake  nothing  that 
can  be  accomplished  by  individual  enterprise. 

If  we  admit  that  the  difficulties  which  surround 
industry  are  imposed  for  our  good,  and  form  a  part 
of  our  discipline  and  culture,  political  society  pal- 
pably acts  on  a  false  idea  when  it  relieves  the  citizen 
of  his  own  proper  responsibility,  care,  or  labor,  and 
assumes  his  natural  duties.  This,  however,  is  not 
the  only  reason  against  such  interference.  Govern- 
ment never  does  the  work  of  individuals  as  well  as 
it  can  be  done  by  individuals. 

It  cannot  be  too  often  or  earnestly  insisted  on,  that 
individual,  interested  supervision  is  the  grandest 
economical  condition,  and  should  never  be  departed 
from  till  the  work  becomes  too  vast  for  single  hands. 

2d.  Government  should  do  nothing  for  display. 

For  ages  the  science  of  politics  might  be  summed 
up  in  the  word  "  pageantry."  To  dazzle  the  vulgar 
eye,  and  overawe  the  common  sense  of  the  people, 
by  splendid  equipage  and  stately  building,  has  been 
the  main  theory  of  rulers.  The  system  certainly  has 
not  failed  for  want  of  trial.  There  have  been  gov- 

35 


410  CONSUMPTION. 

ernors  who  wisely  sought  to  prove  that  the  power 
of  the  law  and  the  peace  of  the  subject  did  not 
depend  on  show.  The  simplicity  and  austerity  ex- 
hibited by  Carus  of  Rome,  Julian  of  Constantinople, 
Elizabeth  of  England, the  Great  Frederick  of  Prussia, 
and  the  Saracen  caliphs  in  all  ages,  stand  in  marked 
contrast  with  the  wicked  and  ruinous  extravagance 
that  has  marked  the  administration  of  most  of  the 
governments  of  the  world. 

3d.  The  expense  of  government  will  vary  accord- 
ing to  the  circumstances  and  character  of  the  people. 

Some  peoples  have  a  government  as  simple,  primi- 
tive, and  cheap  as  their  clothing;  while  others,  no 
more  highly  civilized,  manifest  an  inclination  to 
complicated  and  refined  forms  of  administering  law, 
which  bring  a  heavy  burden  of  taxation  on  the 
present,  and  entail  permanent  debt  on  posterity. 
Some  nations  surround  themselves  with  fortifica- 
tions, and  maintain  extensive  forces,  just  as  some 
countries  can  keep  out  the  ocean  only  by  artificial 
dikes  and  levees;  others  have  a  natural  strength,  or 
an  isolation,  that  is  as  good  to  them  as  strong  armies. 

Russia  spends  yearly  three  dollars  a  head  in  gov- 
erning her  people  and  supporting  her  armies ; 
Prussia,  five  dollars;  the  United  States,  up  to  1860, 
two  and  a  half  dollars,  reckoning  only  the  federal 
establishment;  Great  Britain  runs  her  expenditure 
up  to  ten  dollars.  Political  economy  has  great 
charity  for  claims  based  on  public  considerations. 
It  allows  that  whatever  is  really  necessary  for  peace 
and  order  and  property,  in  full  view  of  the  national 
peculiarities  or  geographical  difficulties,  is  econ^mi- 
cally  well  spent  and  a  good  investment  of  capiutl 


CHARITY    AND    POOR-LAWS.  411 

Yet  government  charges  heavily  for  what  it  does. 
The  expenditure  of  the  United  States,  even  if  no  at- 
tempt is  made  to  liquidate  the  public  debt,  will  not, 
probably,  be  less  than  three  hundred  millions  ;  and 
this,  exclusive  of  all  the  service  of  State  and  muni- 
cipal government. 

On  the  whole,  it  may  be  said  of  this  duty  of  capi- 
tal to  support  government,  that  it  pays,  as  an  invest- 
ment, whatever  it  may  necessarily  cost ;  but  that  the 
expense  should  be  strictly  held  down  to  the  lowest 
practicable  figure. 


CHAPTER  III. 

CHARITY   AND    POOR-LAWS. 

IN  the  United  States,  the  question  of  charities  has 
not  that  engrossing  interest  which  it  commands 
among  the  older  peoples  of  the  world.  Land  here 
is  so  cheap,  labor  so  much  in  demand,  that  no  able- 
bodied  man  has  any  excuse  for  pauperism.  And 
even  many  of  those  disabled  by  severe  accidents  are 
yet  competent  to  earn  something  for  livelihood,  in  a 
country  where*  every  hand  is  wanted  for  work.  It 
is  probable  that  the  pauperism  of  the  nation  is  not, 
in  ordinary  times,  equal  to  one-half  of  one  percent, 
of  its  population  ;  while  England  and  Wales  had, 
in  1859,  four  and  a  half  per  cent. ;  Holland,  in  1855, 
eight  and  a  half;  Belgium,  in  1846,  sixteen;  East 
and  West  Flanders  rising  that  year  to  thirty  per  cent. 


412  CONSUMPTION. 

The  methods  of  charity  have  not,  therefore,  the 
same  importance  with  us  which  they  bear  elsewhere. 
It  is  a  matter  of  profound  concern  with  others,  that 
pauperism  should  be  in  every  way  discouraged,  and 
that  what  of  it  is  necessary  should  be  as  cheaply 
arranged  as  possible.  Here,  the  only  occasion  for 
anxiety  is,  lest  some  unfortunate  should  be  over- 
looked in  the  general  prosperity  of  the  country.  It 
will  not,  however,  be  without  interest  and  instruc- 
tion to  regard  carefully  the  practical  principles  which 
should  govern  the  administration  of  charity. 

1st.  What  classes  are  entitled  to  charity? 

Manifestly  all  who  are  unable  to  subsist  in  common 
decency  without  it. 

But  should  government  provide  nothing  for  those 
who,  having  wantonly  wasted  their  means  and  gifts 
of  labor,  find  themselves,  and  those  dependent  on 
them,  suffering  for  the  necessaries  of  life?  We 
answer,  that  the  liberty  of  the  subject  is  not  a 
privilege  to  become  a  pauper;  that  government  has 
the  right  to  protect  itself;  that  it  may,  by  stringent 
enactments  concerning  vagrancy  and  indolence,  an- 
ticipate the  operation  of  such  causes;  that  it  may 
encourage  industry  by  rewards,  or  compel  it  by  pains 
and  penalties ;  that  it  may  apply  to  vicious  pauper- 
ism the  same  severity  as  to  crime.  Yet,  when  all 
this  is  granted,  and  all  this  done,  there  will  still  re- 
main a  certain  degree  of  physical  want,  the  result 
of  sinful  and  slothful  habits.  Of  this  the  state  must 
have  charge. 

2d.  Who  should  administer  charity? 

An  argument  might  be  made  from  the  principle 
of  benevolence  and  the  sensibility  to  another's  dis- 


CHARITY   AND    POOR  LAWS.  413 

tress  found  in  the  constitution  of  our  nature,  that 
charity  was  not  alone  designed  for  government,  but 
that  the  relief  of  the  poor  is  appropriate  to  private 
hands.  And  there  is  a  plain,  economical  reason,  in 
that  such  contributions  can  be  made  more  timely, 
more  judiciously,  and  more  cheaply,  by  the  offices 
of  individuals  than  by  public  agencies.  There  is  a 
further  reason,  not  less  economical  than  moral,  that 
assistance  rendered  in  this  form  does  less  hurt  to  the- 
feelings  of  the  recipient.  The  interests  of  produc- 
tion, not  less  than  the  law  of  kindness,  object  to 
the  unnecessary  lowering  of  the  self-respect  of  any 
class  or  person.  To  accept  charity  from  a  neighbor, 
under  the  pressure  of  extraordinary  misfortune, 
could  impeach  the  honor  of  no  one;  but  to  take 
bread  from  government  carries  with  it  a  sort  of 
taint  of  beggary  through  life. 

Here,  then,  in  individual  contributions,  we  have 
one  of  the  main  instruments  by  which  the  relief  of 
the  poor  should  be  effected. 

There  is  another  class  of  voluntary  agencies, 
standing  between  individual  charity  and  that  of  the 
state,  consisting  of  mutual-relief  societies  and  trade 
associations,  established  for  the  purpose  of  assisting 
their  members  over  the  rough  places  of  life.  When 
honestly  formed,  and  held  to  their  legitimate  work, 
they  have,  economically,  all  the  advantages  of  divi- 
sion of  labor.  With  this  they  unite  a  considerable 
share  of  intelligence,  as  to  the  special  deserts  of 
applicants.  There  is  also,  and  principally,  the  con- 
sideration, that  relief  from  this  source  is  thought  to 
have  nothing  degrading,  and  so  preserves  the  self- 
respect  of  those  who  receive  the  aid. 

35* 


414  CONSUMPTION. 

Yet  all  these  methods  cannot  be  relied  on,  by 
themselves,  for  all  times  and  at  all  places.  The 
state  should  assume  the  responsibility  and  control 
of  the  poor  everywhere.  It  is  a  part  of  the  national 
concerns  that  no  subject  shall  suffer  from  want. 
After  all  that  individual  and  associated  charity  can 
do,  there  will  be  an  immense  amount  of  the  most 
repulsive  and  un romantic  want  and  misery  awaiting 
remedy  by  government. 

3d.  By  what  branches  of  the  government  should 
public  chanty  be  administered? 

We  answer,  that,  in  the  mere  relief  of  poverty, 
local  authorities  be  charged  with  the  dispensation, 
though  the  state  may,  and  indeed  should,  compel 
them  to  do  it,  and  perhaps  regulate  the  degree  and 
manner  of  it.  Wherever  a  pauper  has  his  residence, 
there  he  should  receive  whatever  assistance  he  is  to 
have.  More  work  can  be  got  out  of  him,  his  char- 
acter and  claims  will  be  better  understood,  he  will 
be  nearer  to  returning  into  the  condition  of  self- 
support,  and  each  community  will  have  an  active 
interest  to  diminish  its  pauperism.  All  this  is  addi- 
tional to  the  greater  expense  of  monster  workhouses, 
and  the  corruption  they  are  sure  to  breed. 

We  said,  "  in  the  mere  relief  of  poverty."  But 
government  charity  has  to  do  with  other  classes 
with  which  the  rule  of  assistance  is  directly  oppo- 
site. Hospitals  for  the  disabled,  asylums  for  the 
insane,  schools  for  the  blind,  —  these  should  be 
aggregated  to  secure  the  best  scientific  treatment 
and  the  greatest  natural  advantages. 

4th.  To  what  extent  should  charity  be  given  ? 

To  the  full  extent  of  the  necessities  of  the  sub- 


CHARITY   AXD    POOR-LAWS.  415 

ject.  The  destitute,  whether  maintained  in  their 
own  homes  or  in  public  institutions,  should  be 
required  to  do  all  the  work  they  are  able  to  per- 
form. This  is  just;  for  the  government  has  the 
right  to  diminish  its  own  burden.  It  is  kind;  be- 
cause, by  keeping  up  their  habits  of  industry,  it 
preserves  self-respect  and  bodily  vigor,  and  may  in 
time  enable  them  to  return  to  a  condition  of  selt- 
eupport.  To  render  any  more  assistance  than  is 
really  necessary,  is  not  to  relieve  pauperism,  but  to 
encourage  it. 

Poor-laws  may  be  effective,  to  the  full  extent,  in 
providing  for  all  pauperism  that  results  from  natural 
or  accidental  disability  of  body  or  mind  for  self- 
support.  Government  may  relieve  every  form  of 
such  distress  with  entire  satisfaction  of  the  individ- 
ual need,  and  with  perfect  justice  to  the  community. 
But  as  soon  as  the  necessities  of  a  people  bring 
able-bodied  workmen  within  the  scope  of  poor-laws, 
it  is  certain  that,  while  temporary  relief  should  be 
afforded,  the  remedy  must  be  sought  elsewhere. 
The  reason  is  as  follows:  Charity  to  the  disabled  is 
simple  gratuity,  wholly  outside  the  laws  of  value, 
and  involving  a  definite  expense  ;  but  charity  to  the 
laboring  class  is  an  absurdity,  only  explained  by  the 
wickedness  of  human  institutions.  It  is  an  absurdity 
liable  to  indefinite  repetition.  It  indicates  that  the 
point  has  been  reached  below  which  oppression  and 
greed  cannot  go.  Poor-laws,  permanently  embracing 
in  their  charity  able-bodied  workmen,  simply  show 
that  the  gratification  was  long  since  abandoned ;  that 
comfort  was  afterwards  denied  by  oppressive  require- 
ments or  restrictions ;  and  that  now  the  lowest  plane 


416  CONSUMPTION. 

of  injustice  has  been  reached,  in  the  inability  of  the 
laborer  to  support  himself.  There  is  no  further  de- 
scent; nor  have  poor-laws  any  virtue  to  bring  back 
the  right  order  of  things.  The  great,  the  sole,  regu- 
lating principle  of  economical  life,  viz.,  the  entire 
self-sufficiency  of  labor,  has  been  destroyed;  and 
nothing  but  laws  returning  labor  to  its  own  full 
rights,  not  affording  it  charity,  can  restore  health  and 
harmony.  There  is  no  proper  ground  for  charity 
but  the  inability  to  labor;  and,  when  under  the  stress 
of  government  injustice  and  social  falsehood,  it  de- 
parts from  these  limits,  it  begins  a  wandering  that 
has  no  end.  The  pauperism  of  America  is  the  re- 
sult of  accidents,  and  expires  with  its  special  causes. 
The  pauperism  of  Europe  is  the  effect  of  system, 
and  perpetuates  itself. 

5th.  In  what  spirit  should  charity  be  adminis- 
tered ? 

In  that  of  kindness  and  respect.  No  condition  of 
life  and  character  is  so  abandoned  that  it  needs  or 
deserves  that  marks  of  ignominy  should  be  attached. 
When  the  murderer,  with  his  bloody  hands, is  to  be 
executed,  the  sentiment  of  the  community  shrinks 
from  the  idea  of  adding  insult  to  his  doom.  He  is 
treated  among  no  magnanimous  people  with  con- 
tumely or  outrage.  If  his  manhood  is  respected, 
even  in  his  crime,  should  not  those  who  are  the  vic- 
tims of  misfortune,  or  at  the  worst  of  only  passive 
vices,  be  free  from  more  than  the  disgrace  which  is 
necessary  to  their  condition  ?  It  is  unchristian,  it  is 
cowardly,  to  insult  by  word  or  badge  the  unfortu- 
nates of  society.  No  true  man  will  do  it :  no  brave 
people  will  allow  it  to  be  done. 


THE    FINANCE    OF    WAR.  417 

Yet  there  should  be  no  weakness  or  paltering  in 
charity.  While  all  harshness  and  contumely  are 
avoided,  public  maintenance  should  never  be  made 
desirable  to  the  able-bodied  workman,  nor  should 
even  the  feeble  be  allowed  to  escape  just  so  much 
of  labor  as  their  condition  permits.  This  is  justice 
to  the  community,  and  kindness  to  the  unfortunate. 
Especially  should  the  public  sense  discourage  and 
banish  that  shameless  and  obtrusive  medicancy  by 
which  the  bold  and  bad  snatch  away  the  portion  of 
the  weak,  the  honest,  the  retiring  poor.  The  truly 
helpless  and  suffering  should  be  sheltered  under  the 
wings  of  charity  ;  the  indolent  and  wasteful,  driven 
out  into  the  storms  of  the  world. 


CHAPTER   IV. 

I.    THE    FINANCE    OF   WAR. 

THE  finance  of  war  is  greatly  perplexed  to  the 
popular  mind  by  one  fallacy,  which  is,  that  a  vastly 
greater  amount  of  money  is  needed  in  time  of  war 
than  of  peace.  Bewildered  by  this  notion,  than 
which  none  can  be  more  absurd,  the  public  are 
easily  induced  to  sanction  a  whole  class  of  measures 
that  would  be  generally  recognized  as  injurious  in 
ordinary  times,  but  are  imagined  to  have  some  virtue 
to  bring  out  a  greater  amount  of  money  to  meet  the 
supposed  emergencies  of  war.  The  truth  is,  if  we 


418  CONSUMPTION. 

suppose  no  extra  importation  of  foreign  material 
for  consumption  (and  nineteen-twentieths  of  the  ex- 
penditures of  all  wars  are  for  domestic  labor  and 
material),  there  is  no  larger  production,  no  more 
commodities  to  be  exchanged,  no  more  services  to 
be  rewarded,  and  consequently  no  more  occasion  for 
the  use  of  money. 

But  government  now  becomes  the  great  operator, 
employs  perhaps  ten  times  its  usual  number  of 
agents,  expends  ten  times  its  usual  resources.  It 
then  has  need  of  more  money  :  but  as  it  only  takes 
the  place  of  former  employers,  of  former  consumers, 
so  it  only  needs  to  take  their  place  in  the  receipt  of 
money;  and  that  may  be  effected  by  prompt,  equal, 
and  thorough  taxation, — taxation,  too,  conducted  by 
the  established  methods,  and  in  accordance  with  such 
principles  as  we  have  laid  down.  A  state  of  war, 
therefore,  instead  of  being,  as  it  is  usually  made,  a 
reason  for  departing  from  the  ordinary  rules  of  pub- 
lic economy,  is  an  additional  reason  for  adhering 
closely  to  them  in  every  particular. 

War  is  a  business  as  much  as  agriculture.  The 
same  resources  are  necessary :  there  must  be  mate- 
rials, provision,  tools,  labor.  This  is  all  that  is 
needed  in  either;  nor  is  there  the  least  difference  in 
the  two,  considered  as  modes  of  production :  their 
principles  and  methods  are  the  same.  It  is  only 
when  considered  as  modes  of  consumption  that  they 
have  separate  relations  to  the  science  of  wealth. 
"  Raising  money"  has  been  generally  accepted  as 
the  great  business  of  a  nation  in  war ;  but  it  is  no 
more  so  than  in  ordinary  times.  What  is  wanted  are 
labor, tools,  provision,  and  materials:  these  are  what 


THE    FINANCE    OF   WAR.  419 

must  be  "  raised."  And  at  least  an  equal  amount, 
though  of  different  kinds  and  for  different  purposes, 
is  "  raised''  every  year  or  day  of  peace.  Govern- 
ment, however,  is  now  the  great  employer ;  and,  as 
it  is  to  furnish  these,  it  must  get  them  from  the  com- 
munity which  has  them,  and  has  been  operating 
them.  . 

Indeed,  war  might  be  carried  on  without  money ; 
has  been,  to  a  great  extent.  The  state  might  always 
fill,  as  it  often  has  filled,  its  armies  by  conscrip- 
tion; its  granaries,  by  a  tax  in  kind;  its  arsenals,  by 
compulsory  labor.  The  greatest  armies  the  world 
has  ever  seen  were  raised,  supported,  and  disbanded 
without  a  money  chest.  In  the  advance  of  civiliza- 
tion, it  has  been  found  more  expedient,  as  it  is  more 
just,  that  government  should  purchase  all  it  con- 
sumes in  war,  obtaining  the  means  in  money  by  tax- 
ation. As  war  does  not  increase  the  number  of 
laborers  or  augment  their  power  in  production,  it 
remains  true  that  there  can  be  no  greater  occasion 
for  the  employment  of  money,  whose  only  office  is 
to  exchange  the  products  of  labor. 

It  may  be  thought  that  if  foreign  labor  (as  mer- 
cenary soldiers)  or  foreign  material  (the  products  of 
foreign  labor)  is  introduced,  there  will  be  a  greater 
demand  for  money  to  make  the  exchanges  of  services 
and  values.  Of  the  first,  it  may  be  said  that  the 
employment  of  mercenaries  is,  in  fact,  too  small  to 
be  of  any  account  in  the  great  calculations  of  war- 
like expenditures.  The  latter  is  of  importance,  but 
really  forms  a  small  fraction  of  the  actual  outlays  of 
war,  probably  not  equal  to  the  reduced  wages  of 
domestic  labor  in  arms,  as  against  the  same  labor  in 


420  CONSUMPTION. 

peace;  it  being  true  of  almost  all  armies,  that  theii 
pay  is  below  the  average  of  industrial  occupations. 
But,  if  we  allow  all  the  actual  importation  of  foreign 
materiel  to  be  so  much  added  to  the  necessity  for 
money,  the  effect  will  be  simply  what  has  been 
already  indicated  in  the  philosophy  of  currency. 
Money  will  be  exported  up  to  a  certain  point  to  pay 
for  imports :  this  will  lower  home  prices,  diminish- 
ing the  domestic  expenditures  of  government,  and 
encouraging  the  export  of  produce,  which  will  con- 
tinually tend  to  restore  the  balance.  Beyond  the 
point  at  which  money  cannot  be  sent  off,  without 
domestic  distress,  government  must  resort  to  credit 
by  loans.  Such  loans,  however,  cannot  increase  the 
money  in  the  country  ;  for,  even  if  they  tirst  assume 
that  form  abroad,  they  are  turned  into  materiel  before 
imported. 

This  discussion,  it  should  be  borne  in  mind,  has 
only  regarded  the  amount  of  money  required  in  war. 
We  have  had  nothing  directly  to  say  as  to  the 
amount  of  capital  employed.  Of  this  we  express  no 
opinion;  while  we  maintain  that  it  is  unquestionably 
true,  that  no  greater  volume  of  money  is  needed  to 
effect  all  the  exchanges  incident  to  a  state  of  war. 


ECONOMY  OF    THE    WAR    SYSTEM. 

War  is  the  greatest  fact  that  presents  itself  in  this 
part  of  our  general  subject.  Its  consumption,  its 
expenditures,  are  wholly  for  unproductive  purposes, 
and  not  only  unproductive,  but  absolutely  destruc- 
tive of  those  by  whose  labor  wealth  is  produced. 


ECONOMY   OF   THE   WAR    SYSTEM.  421 

War  demands  by  far  the  largest  part  of  all  the  re- 
venues  of  civilized  governments  throughout  the 
world.  It  therefore  claims  consideration  as  far  as 
our  limits  will  permit. 

That  war  is  a  political  necessity  while  no  prepara- 
tion is  made  for  preserving  peace,  cannot  for  a  mo- 
ment be  denied.  So  also  were  private  combats  and 
the  wager  of  battle  in  by-gone  ages.  Disputes  will 
ensue  between  nations  as  between  individuals;  and, 
if  no  provision  is  made  for  umpirage  or  arbitration, 
a  resort  to  the  sword  is  inevitable.  Hence  the  great 
system  of  war.  But  for  established  laws  and  courts 
of  justice,  individuals  would,  of  necessity,  be  com- 
pelled to  seek  redress  for  private  grievances  by  an  ap- 
peal to  brute  force.  This  would  not,  indeed,  determine 
which  of  the  parties  was  in  the  right,  only  which 
was  the  stronger  or  more  fortunate  in  the  struggle. 
So  of  nations.  When  differences  arise  between 
them,  how  can  they  be  settled  except  by  a  trial  of 
strength  ?  There  is  no  well  defined,  well  established 
code  of  international  law;  there  is  no  tribunal  of 
international  justice:  how  then,  except  in  battle, 
can  their  disputes  be  adjusted  ?  It  is  a  well-estab- 
lished principle,  that  a  man  should  not  be  a  jndge 
in  his  own  case;  and  therefore,  as  between  indi- 
viduals, it  is  decided  that,  instead  of  the  wager  of 
battle,  the  aggrieved  party  shall  submit  his  case  to 
the  arbitrament  of  his  t'el low-citizens.  But,  as  be- 
tween nations,  no  such  arrangement  has  as  yet  been 
made. 

Hence  we  are  to  contemplate  war  as  a  political 
necessity,  until  the  nations  of  the  earth  shall  estab- 
lish a  code  of  international  law,  and  institute  a  high 

36 


422  CONSUMPTION. 

court  of  appeal,  to  which  their  disputes  shall  be  re- 
ferred for  adjudication. 

War,  then,  in  the  sense  in  which  we  are  to  look  at 
it,  is  not  an  accidental  fact,  but  an  established  sys- 
tem; and,  as  an  economical  question,  is  to  be  re- 
garded from  three  different  points  of  view. 

1st.  As  consisting  of  a  permanent  military  force, 
a  standing  army,  with  all  the  paraphernalia  of  war; 
and,  if  the  nation  be  maritime  in  its  position,  a  naval 
force,  somewhat  proportioned  to  its  military  estab- 
lishment. 

2d.  A  system  of  constantly  increasing  preparations 
for  war, — arsenals,  dockyards,  and  manufactories. 

3d.  A  heavy  indebtedness  for  wars  of  the  past, 
with  unceasing  taxation  for  the  payment  of  accruing 
interest  and  the  extension  and  perpetuation  of  the 
system. 

These  three  items  may  be  said  to  constitute  the 
war  system  of  the  civilized  world  at  the  present  day. 
Looking  at  war  in  its  economical  bearings  only,  the 
great  feature  that  presents  itself  is  the  immense  and 
constantly  increasing  expenditures  it  requires. 

In  proof  of  this,  we  tirst  refer  to  the  statistics  of 
Great  Britain,  not  because  they  are  peculiar,  but  that 
they  are  full  and  reliable.  Her  naval  and  military 
expenditures  from  1815  to  1865,  during  which  period 
of  fifty  years  there  has  been  no  protracted  war,  have 
been  £1,084,330,507,  equal  to  $5,000*000,000,  or  twice 
as  much  as  the  whole  present  debt  of  the  United 
States:  from  1855  to  1865  inclusive,  £769,612,936, 
of  which  £301>618,920  were  required  to  pay  interest 
on  the  national  debt;  £331,887,258  for  current  ex- 
penses of  army  and  navy  ;  for  the  cost  of  collection, 


ECONOMY    OF    THE    WAR    SY&TEM.  423 

£48,738,823  (or  about  six  per  cent,  of  the  whole  reve- 
nue); and  only  £105,472,935  for  all  the  expenses  of 
civil  government.  So  that,  in  paying  interest  upon 
the  debt  wholly  created  in  war  and  in  meeting 
present  expenses,  the  war  system  swallowed  up  six- 
sevenths  of  the  entire  revenue.  And  that  which  is 
true  of  Great  Britain  is  to  nearly  an  equal  extent 
true  of  France  and  almost  every  nation  of  Europe. 

The  armed  forces  of  Europe  now  (1871)  are  sup- 
posed to  be  equal  to  near  five  millions  of  men,  all 
told,  and  the  grand  total  of  war  debts  some  fifteen 
billion  dollars. 

Another  important  point  to  be  noticed  in  relation 
to  the  war  expenditures  of  European  nations  is, 
that  they  have  been  constantly  increasing,  and  at  a 
fearful  rate. 

The  increase  of  taxation  in  England  between  1863 
and  1865  was  fifteen  millions  sterling  per  annum 
over  the  previous  decade.  The  cost  of  the  army, 
navy,  and  ordnance  combined,  in  1835,  was  less  than 
twelve  millions;  in  1850,  it  was  fifteen  millions;  in 
1861,  it  had  increased  to  thirty  millions  sterling. 

Between  the  years  1842  and  1853,  the  income  of 
the  wealth  of  Great  Britain  was  at  the  rate  of  twelve, 
and  her  expenditures  were  at  the  rate  of  eight 
and  three-quarters,  per  cent. ;  while,  between  1853 
and  1859,  the  national  wealth  grew  at  the  rate  of 
sixteen  and  a  half,  while  the  national  expenditure 
was  at  the  rate  of  fifty-eight,  per  cent. 

France  is  almost  crushed  under  the  excessive 
burden  of  debt  which  her  vast  military  system  and 
the  disastrous  results  of  her  late  struggle  with  Prus- 
sia have  entailed  upon  her. 


424  CONSUMPTION. 

IS    WAR    A    MORAL    NECESSITY  ? 

"We  have  said  that,  under  existing  circumstances, 
war  may  be  a  political  necessity;  but  is  it  amoral 
necessity  ?  Is  there  anything  in  the  nature  of  man 
which  n.akes  the  destruction  of  his  fellow-men  in 
war  unavoidable?  Is  it  not  as  feasible  and  as  con- 
sistent with  his  nature  to  dispense  with  appeals  to 
brute  force  among  different  communities,  as  be- 
tween different  individuals  in  those  communities? 
Would  not  the  same  principle,  the  same  common 
sense,  which  establishes  a  court  of  justice  for  the 
settlement  of  private  disputes,  establish  a  similar 
tribunal  for  the  settlement  of  international  differ- 
ences? If  it  is  indispensable  to  the  preservation  of 
peace  among  individuals,  that  there  be  a  well- 
defined  code  of  laws,  which  all  may  understand,  and 
all  must  be  required  to  obey,  is  it  not  equally  indis- 
pensable among  different  communities? 

At  present,  as  we  have  said,  there  is  no  established 
code  of  international  law,  or  any  common  tribunal 
for  the  settlement  of  international  disputes.  Is  the 
attainment  of  these  admittedly  important  objects 
practicable?  In  what  manner  can  they  be  secured? 
Evidently  in  the  same  way  in  which  all  social  insti- 
tutions are  formed;  viz.,  by  the  voluntary,  harmoni- 
ous action  of  those  who  are  directly  concerned.  And 
this  can  only  be  secured  by  concerted  and  concen- 
trated effort.  This  is  a  necessary  preliminary.  Is  it 
feasible?  Can  the  human  mind  achieve  this  ad- 
vanced step  to  a  higher  condition  ? 

We  answer  these  questions,  without  hesitation,  in 
the  affirmative,  and  for  the  following  reasons : 


ECONOMY    OF    THE    WAR    SYSTEM.  425 

First.  Because  the  present  system  is  at  war  with 
tbe  plainest  dictates  of  common  sense,  and  the  high- 
est interests  of  mankind. 

It  may  be  safely  assumed,  that  any  system,  policy, 
or  practice  which,  in  the  course  of  events  and  the 
lapse  of  time,  has  become,  not  only  absolutely  use- 
less, but  positively  pernicious  and  absurd,  cannot 
long  continue;  that  the  advancing  tide  of  intelli- 
gence will  sweep  it  away  as  the  rubbish  of  the  past. 

Each  nation,  as  we  have  seen,  has  its  standing 
army,  its  navy,  fortifications,  dockyards,  arsenals, 
etc.,  etc.;  and,  consequently,  each  is  endangered  by 
the  military  and  naval  preparations  of  every  other, 
and  they  live  in  constant  mutual  jealousy.  Hence 
there  is  an  unceasing  competition.  One  nation  adds 
to  its  naval  and  military  armaments  because,  and  only 
because,  the  other  does,  and  still  both  are  as  relatively 
defenceless  as  ever.  This  is,  and  has  long  been,  the 
universal  European  policy  :  yet  is  it  not  irrational? 

Secondly.  Because  the  changes  which  are  con- 
tinually taking  place  in  the  machinery  of  war  are 
so  great  and  frequent  as  to  forbid  all  hope  that 
nations  can  ever  be  fully  prepared  for  war.  What 
terrible  engines  of  destruction,  what  unheard-of 
forces,  are  yet  to  be  brought  into  use  for  the  de- 
struction of  mankind?  The  mind  stands  aghast  at 
the  awful  possibilities  of  the  future,  if -the  present 
senseless  and  inhuman  competition  in  war  prepara- 
tions is  to  be  continued.  The  moral  sense  of  the 
world  revolts  at  the  thought  of  such  stupendous 
folly  and  crime. 

A  third  consideration  which  leads  us  to  expect 
that  the  present  war  system  will  be 

36* 


426  CONSUMPTION. 

general  confederation  for  the  preservation  of  peace 
that  all  the  social  influences  of  the  age  are  against  its 
barbarities. 

(a)  Commerce,  as  well  as  common  sense,  makes  a 
strong  plea  in  favor  of  peace.  Extending  with  al- 
most inconceivable  rapidity,  its  influence  is  every 
day  advancing,  and  its  interests  becoming  more 
identified  with  the  harmony  of  nations. 

(6)  The  rapidly  increasing  intercourse  by  travel 
between  the  different  peoples  is  making  them  more 
acquainted  with  each  other,  and  dissipating  much  of 
that  ignorance  and  prejudice  which,  in  times  past, 
has  been  a  prolific  source  of  jealousy  and  distrust. 

(c)  The  education  of  the  masses,  their  gradual 
progress  in  knowledge,  and  their  growing  influence 
in  public  affairs,  is  another  very  hopeful  indication. 
The  people  are  being  enlightened,  and  are  becoming 
too  "wise"  to  be  made  the  dupes  of  a  system  of 
which  they  are  the  greatest  victims. 

But  our  fourth  reason  for  expecting  that  the  great 
object  of  disarmament  will  be  accomplished,  arises 
from  the  consideration  that  public  sentiment  has 
been  evidently  turned  in  that  direction  for  the  last 
fifty  years,  and  much  has  actually  been  done  towards 
bringing  the  subject  directly  before  the  different 
nations. 

Associations  have  existed  for  a  long  time,  whose 
object  has  been  to  bring  about  permanent  and  uni- 
versal peace;  and  one  of  the  prominent  measures 
insisted  upon  as  necessary  to  this  end,  has  been  a 
congress  of  nations.  And  lastly,  we  hope  much 
from  the  pacific  settlement  now  in  progress  between 
Great  Britain  and  the  United  States,  by  which  dis- 


ECONOMY   OF    PUBLIC    EDUCATION.  427 

putes  of  the  gravest  character  have  been  submitted 
to  peaceful  arbitration.  The  Treaty  of  Washington, 
under  which  this  has  been  brought  about,  forms  a 
new  era  in  diplomacy;  and  the  court  of  arbitration 
now  assembling  at  Geneva  establishes  a  precedent 
that  we  may  reasonably  anticipate  will  hereafter  be 
accepted  for  the  honorable  adjustment  of  differ- 
ences between  independent  sovereignties,  however 
great  and  powerful. 


CHAPTER  Y. 

ON    THE    ECONOMY   OF    PUBLIC   EDUCATION. 

IT  is  difficult  for  Americans  to  sympathize  in  the 
least  with  the  objection  which  is  made  in  England, 
even  by  those  distinguished  for  liberal  sentiments, 
that  compulsory  education  is  a  breach  of  the  liberty 
of  the  subject.  Our  incapacity  for  understanding  or 
even  respecting  that  sentiment  arises  from  the  fact 
that  such  education  was  early  made  one  of  the  foun- 
dations of  our  social  and  political  organization,  and 
we  have  grown  up  to  regard  it  as  an  accepted  prin- 
ciple of  good  government.  Our  intolerance  of  the 
English  theory,  however,  is  not  helped  by  the  con- 
sideration that  the  support  of  a  particular  religion 
is  made  compulsory  by  the  British  government. 

The  economic  results  of  public  education  are 
manifestly  in  two  directions. 

1st.  It  is  intended  to  effect  the  prevention  of  pau- 


CONSUMPTION. 

perism  and  crime.  To  use  a  popular  American 
phrase,  "It's  cheaper  to  build  school-houses  than 
jails/'  In  looking  at  this  matter,  we  need  to  take 
a  view  between  that  of  the  optimist  who  expects  the 
extinguishment  of  sin  and  vice  by  the  advance  of 
knowledge,  and  that  of  certain  grossly  material  phi- 
losophers who  compose  statistical  tables  to  prove 
that  general  enlightenment  rather  encourages  crime. 
The  first  notion  is  refuted  by  sad  experience.  We 
may  fairly  decline  to  consider  the  second  till  it  re- 
receives  the  sanction  of  one  practical  statesman. 
Such  is  the  theory  of  our  government  on  public 
education. 

2d.  Public  education  is  intended  to  bring  about, 
positively,  a  higher  economical  condition. 

It  is  mind  that  gives  man  power  over  the  brute 
creation  ;  and  it  is  by  enlarging  and  instructing  the 
mental  pow-er  that  the  greatest  possible  factor  is 
introduced  into  his  effort. 

We  do  not  speak  now  of  the  education  of  the  la- 
borer in  art  and  science  for  their  own  sake,  but  solely 
for  his  advancement  as  an  individual  being;  nor  do 
we  refer  to  the  indirect  influence  on  social  order 
and  national  power,  enlarging  the  desires,  stimu- 
lating the  activities,  and  promoting  the  frugality  of 
a  people;.  We  allude  only  to  the  education  of  all 
who  labor,  whether  as  masters  or  apprentices,  invent- 
ors or  drudges,  governors  or  soldiers,  in  order  that 
they  may  more  intelligently  and  efficiently  discharge 
their  parts  in  production. 

It  pays  to  do  so.  A  few  years  of  boyhood  spent 
in  practical  studies  has  taken  many  a  man  out  of  the 
class  of  day  laborers,  and  placed  him  among  those 


ECONOMY    OF    PUBLIC    EDUCATION.  429 

who  superintend  the  work  of  hundreds,  or  by  scien- 
tific discovery  multiply  the  power  of  industry  mani- 
fold. Nor  is  it  alone  in  these  marked  cases  that  a 
fortunate  result  has  appeared.  It  is  perfectly  prac- 
ticable in  any  country  to  raise  the  whole  body  of  the 
people  one  distinct  grade  in  industrial  character;  to 
make  every  hand  and  every  eye  more  strong  and 
accurate,  while  giving  to  each  the  repeating  power 
of  mind. 

It  is  not  only  demanded  in  the  interest  of  a 
greater  production,  but  also  to  secure  a  more  just 
and  uniform  distribution  of  wealth.  The  more 
highly  educated,  industrially,  the  workman  is,  the 
iirmer  and  apter  resistance  will  he  offer  to  the  ag- 
gressions of  capital  or  competing  labor;  the  higher 
will  become  his  necessary  wages,  the  more  reason- 
able his  remuneration.  It  is  the  poor  man's  share 
of  wealth  which,  after  all  (while  we  respect  the 
rights  of  capital  for  its  own  sake  no  more  than  for 
the  welfare  of  labor),  is  the  object  of  humane  science 
and  legislation.  A  great  conflict  between  labor  and 
capital  is  now  imminent  throughout  the  civilized 
world;  but  if  there  shall  ever  be  a  good  and  satis- 
factory solution  of  the  great  question  at  issue,  it  will 
be  because  the  capitalist  and  the  laborer  have  been 
alike  educated  to  understand  the  laws  of  wealth,  and 
the  true  relations  between  the  two  great  competing 
but  not  antagonistic  forces  of  production. 


430  CONSUMPTION. 


CHAPTER  VI. 

POPULATION. 

THE  question  of  population  has  been  invested,  by 
the  treatment  of  British  writers,  with  great  mys- 
tery and  terror.  The  glut,  famine,  and  death  theories 
of  Mai  thus  have  done  much  to  impress  upon  politi- 
cal economy  the  shape  it  has  to-day  in  the  world's 
estimation.  Rightly  enough,  if  they  are  correct,  is 
it  called  a  dismal  science.  Malthus  exhausted  the 
direct  horrors  of  the  subject;  but  the  effect  was 
greatly  heightened  by  the  benevolent  efforts  of  many 
subsequent  writers  to  provide  some  way  of  escape 
from  this  fatal  conclusion, — efforts  which,  as  they 
resulted  in  palpable  failure,  only  made  the  outlook 
of  humanity  more  dreary  and  hopeless. 

The  fact  is,  all  this  British  philosophy  of  popula- 
tion is  perverted  and  diseased  from  its  root.  It 
comes  out  of  social  wrongs  and  false  political  insti- 
tutions. It  strives  to  apply,  as  a  universal  condition 
of  human  being,  the  miserable  results  of  local  mis- 
rule. Prior  to  all  consideration  of  such  arguments, 
there  is  reason  to  suspect  theories  of  subsistence  and 
population  that  come  from  an  island  where  holdings 
of  land  are  only  as  one  to  six  hundred  or  seven  hun- 
dred inhabitants. 

These  principles  are  intended  to  apply  to  the  en- 
tire surface  of  the  earth,  and  have  no  merit  unless 
capable  of  such  extension  ;  but,  to  give  them  their 


POPULATION.  431 

most  favorable  conditions,  we  will  first  consider  a 
single  district  of  limited  area, — say,  England  itself. 

Two  postulates  are  often  assumed :  1st,  that  sub- 
sistence is  stationary  or  retrogressive ;  2d,  that 
propagation  is  a  constantly  operating  force,  enlarg- 
ing population  in  some  assignable  ratio.  The  infer- 
ence is,  that  the  relation  of  these  two  must  bring 
out  destitution  and  famine. 

There  are  here  three  fallacies:  1st,  that  subsistence 
is  not  progressive;  2d,  that  population  necessarily  in- 
creases; 3d,  that,  even  if  these  were  granted,  there 
would  exist  between  them  any  such  melancholy  re- 
lation as  is  assumed. 

1st.  Subsistence. — The  fertility  of  the  earth,  in- 
stead of  diminishing,  is,  under  intelligent  culture 
and  with  the  aids  of  science  and  machinery,  con- 
stantly increasing.  The  advance  of  industrial  power, 
in  commerce  and  manufactures,  not  only  furnishes 
direct  assistance  in  agriculture,  but  releases,  if  re- 
quired, a  great  amount  of  labor  for  the  latter  pur- 
suit. As  is  the  amount  of  labor  applied  to  land,  so 
is  the  yield  the  world  over.  The  England  of  to-day 
is  vastly  more  fertile  than  that  of  the  Heptarchy, 
the  Norman  conquests,  or  the  civil  wars. 

2d.  Propagation. — The  rule  of  geometric  increase 
is  a  favorite  weapon  in  the  defence  of  certain 
theories;  but  it  is  wonderfully  far  from  the  truth  of 
nature.  Boys  have  frequently  exhibited,  on  the 
blackboard,  the  immense  wealth  they  could  acquire 
if  they  should  lay  by  a  penny  a  day,  at  interest,  for 
so  many  years;  and  the  result  seems  very  alarming, 
as  if  that  particular  school  would  eventually  become 
the  owners  of  by  far  the  greater  part  of  the  earth's 


432  CONSUMPTION. 

surface.  So  much  for  mathematics.  But,  in  fact, 
some  days  the  boys  don't  earn  their  pennies,  and 
some  days  they  don-'t  lay  them  by,  and  some  of  the 
boys  die;  and  perhaps  the  bank  unfortunately  breaks, 
or,  after  a  few  months  of  continence,  a  juvenile  rush 
is  made  upon  it,  and  all  hopes  of  fortune  disappear 
in  a  saturnalia  of  candy  and  ginger-pop.  The  illus- 
tration is  plain  and  humble;  but  it  involves  all  the 
elements  that  limit  the  theoretic  advance  of  wealth 
or  population. 

Contemplating  certain  positive  unquestionable 
facts  in  history,  great  instances  of  depopulation,  ages 
of  decline,  the  slow  advances  of  reviving  production, 
we  may  fairly  begin  to  doubt  whether  propagation 
is  a  permanent  force  irrespective  of  conditions.  We 
may  not  unreasonably  inquire  whether  it  ever  ap- 
pears without  a  special  reason  in  the  case;  whether  the 
rule  is  not  the  other  way ;  viz.,  not  that  population 
does  not  proceed  in  spite  of  adverse  influences,  but 
that  it  is  never  called  out  except  by  physical  circu  n- 
sfances,  which,  in  all  their  contradiction  and  bewil- 
derment to  us,  really  form  the  condition  precedent 
of  human  reproduction.  Why  not?  We  do  not 
say  that  individual  growth,  either  vegetable  or  ani- 
mal, is  a  constantly  operating  force,  irrespectiv  •  o 
circumstances.  We  recognize  the  necessity  of  heat, 
moisture,  and  special  properties  of  soil  to  educe  the 
latent  powers  of  expansion.  Similar,  though  more 
remote  and  perplexed,  are  the  influences  which  bring 
out  reproduction  in  the  animal  or  vegetable.  It  is 
therefore  more  correct  to  say  that  population  in 
stead  of  being  limited  by  adverse,  is  only  developed 
by  favorable,  conditions.  We  are  deceived  in  this 


POPULATION.  433 

matter,  since  propagation  acts  almost  universally. 
That  happens  simply  because  the  favorable  condi- 
tions are  nearly  universal. 

3d.  The  third  fallacy  we  detect  is,  that,  granted 
the  two  postulates  of  stationary  subsistence  and  ad- 
vancing population  in  any  country,  there  is  any 
necessary  relation  of  distress  and  deterioration  be- 
tween them.  Such  a  view-  puts  commerce  out  of 
the  question.  In  the  present  state  of  the  world, 
the  only  matter  of  interest  to  determine  in  regard 
to  the  supply  of  any  people  is  whether  they  are 
able  to  produce  values  sufficient  to  command  in  ex- 
change the  commodities  they  must  consume.  It  is 
of  no  consequence  whether  Manchester  and  Birming- 
ham can  raise  their  own  breadstuff's  within  their 
corporate  limits,  if  they  can  create  values  which 
will  lay  all  the  markets  of  the  world  under  contribu- 
tion. Labor,  if  law  does  not  hinder,  is  self  support- 
ing. The  powers  of  industry  are  commensurate 
with  their  wants.  But,  if  legal  and  social  institu- 
tions interrupt  or  burden  exchanges,  in  one  way  or 
another,  distress  will  result.  There  is  no  fault  in 
human  propagation,  but  in  what  is  subsequent. 

In  England,  bad  laws,  passed  by  class  legislation  ; 
oppressive  institutions,  the  relics  of  feudalism ;  oner- 
ous taxation,  incurred  by  the  senseless  war  system ; 
and  unjust  monopolies,  created  for  selfish  purposes, 
— have  combined  to  cause  the  ignorance,  poverty, 
and  degradation  of  the  people,  and  to  make  the 
beneficent  agencies  of  reproduction  a  partial  curse. 
The  laborers  of  England  suffer  for  the  commonest 
necessaries  of  life,  while  England  is  the  richest  na- 
tion on  the  face  of  the  globe.  Unquestionably  the 

37 


434  CONSUMPTION. 

value  of  the  total  production  of  English  industry 
amounts  to  five  times  the  value  of  the  simple  neces- 
saries of  life  for  her  whole  population.  Now,  if 
labor  starves,  is  it  the  fault  of  nature  ?  The  density 
of  population  has  nothing  to  do  with  it.  It  is  be- 
cause the  common  people  have  so  little  influence 
on  the  government;  because  the  land  is  held  for 
the  pleasures  and  dignity  of  the  lordly  few;  and 
because  the  national  majority  is  borne  down  by  a 
powerful,  selfish,  and  grasping  aristocracy. 

If  now  we  extend  our  inquiry  from  England  to 
the  whole  industrial  world,  we  shall  bring  another 
element  into  the  calculation,  not  to  increase  the 
chances  of  distress  by  over-population,  but  to  di- 
minish them.  Whatever  may  be  true  of  individual 
peoples  at  any  particular  time,  the  general  advance 
of  population  all  over  the  earth  has  not  been  very 
clearly  proved.  But,  whether  it  has  taken  place 
from  century  to  century  or  not,  it  certainly  has  not 
progressed  in  the  last  five  centuries  at  so  rapid  a 
rate  as  the  means  of  subsistence ;  nor  is  there  any 
ground  for  believing  that  the  present  advance  will, 
the  world  over,  continue  when  the  means  of  sub- 
sistence shall  become  stationary.  There  never  has 
occurred  a  case  of  starvation  in  the  history  of  the 
world  which  resulted  solely  from  a  deficiency  in  the 
natural  means  of  procuring  food ;  and  there  is  no 
reason  to  believe  that  there  ever  will  be  one.  There 
have  been  countless  millions  of  deaths  from  hunger 
occasioned  by  the  destructiveness,  envy,  or  heedless- 
ness  of  man,  through  war,  commercial  restrictions, 
or  personal  neglect. 

4th.  The  fourth  cause  which  we  shall  notice  is  alto- 


POPULATION.  435 

gether  different  in  its  origin  and  character.  The 
others  have  all  been  on  the  brutal  side  of  man,  oper- 
ating by  misery  and  want.  This  works  in  alliance 
with  the  nobler  part  of  his  being,  and  is  of  a  kind 
with  reason.  It  is  self-restraint.  In  a  degree,  in- 
deed, a  great  part  of  the  world  exercises  this.  The 
Chinaman  will  rear  as  many  children  as  he  can  find 
vermin  for  as  food;  but  the  Hindoo,  through  his  re- 
ligious faith,  stops  short  of  all  animal  food,  and 
limits  population  by  vegetable  subsistence.  And  so 
almost  all  nations  have  a  point  of  decency  below 
which  they  will  not  go.  But  the  self-restraint  of 
which  we  speak  is  of  a  higher  kind,  and  begins  to 
operate  before  the  senses  revolt  in  disgust  or  pinch 
in  hunger.  It  is  found  wherever  there  is  self-respect 
and  social  consideration.  Hence  the  moderate  in- 
crease of  many  countries  where  population  main- 
tains a  just  proportion  to  the  general  wealth,  taste, 
and  customs.  As  this  is  a  subject  to  which  belongs 
illustration  rather  than  analysis,  we  give  at  length  a 
remarkable  example,  which  will  also  enable  us  to 
set  in  contrast  the  operation  of  the  other  .causes. 
We  take  the  State  of  Massachusetts,  of  which,  let  it 
be  observed,  only  a  very  small  class  is  influenced  by 
luxury,  and  a  smaller  class  even  affected  by  destitu- 
tion. Vice  and  misgovernment  certainly  work  as 
little  injury  here  as  in  any  portion  of  the  world. 

The  annual  registration,  made  with  much  care, 
shows  the  following  result  in  regard  to  births  among 
the  native  and  foreign  population  in  1860  : — 

Native  population,  whole  number  of  persons  ....  970,952 
Foreign  "  "  "  "  .  .  .  .  260,114 

Number  of  births  in  native  population 16,672 

"  ««  foreign        "  16,138 


436  CONSUMPTION. 

The  number  of  births  in  the  native  population,  to 
be  in  proportion  to  the  foreign,  should  have  been 
60,239,  or  nearly  four  times  the  actual  number.  This 
difference  is  still  more  remarkable  in  the  census 
returns  of  1870  : 

Whole  population  of  the  State 1,457,351 

Native  population 1,104,960 

Total  foreign  born 352,391 

From  the  Registration  of  the  State  of  Massachu- 
setts for  1870,  we  learn  that  the  whole  number  of 
births  was  38,259,  equal  to  2-62  per  cent,  viz.: 

Of  foreign  parents        18,339 

Of  American  parents       15,563 

The  American  births  then  were  equal  to  1*4  per 
cent,  upon  the  native  population,  while  the  foreign 
births  amounted  to  5*2  per  cent. 

Besides  this,  there  were  of  mixed  parentage : 

Foreign  father 1,787 

Foreign  mother 2,256 

Total 4,043 

or  10J  per  cent,  upon  the  whole  number  of  births  in 
the  Commonwealth. 

From  all  this,  it  appears  that  the  foreign  is  gain- 
ing relatively  upon  the  native  population  by  natural 
increase  at  the  rate  of  5*2  to  1-4,  or  within  a  minute 
fraction  of  4  to  1 ;  and  this  may  be  assumed  with 
considerable  probable  correctness  as  equally  true 
throughout  the  different  States  of  the  American 
Union. 

To  offset  this  in  some  measure,  we  have  the  well- 
known  fact  that  the  mortality  among  children  is  far 
greater  among  the  foreign  than  the  native  popula- 


POPULATION.  437 

tion.  The  difference  is  very  striking  and  suggestive. 
It  may  be  accounted  for  in  part  by  the  following 
considerations : 

(1)  A  very  considerable  share  of  the  foreign  popu- 
lation consists  of  those  under  tifty  years  of  age,  and 
so  generally  able  to  contribute  to  the  increase  of 
population.     How  far  this  fact  is  operative  may  be 
seen  in  the  statement,  that,  if  all  persons  above  fifty 
were  removed  from  the  native  population,  it  would 
be  diminished  somewhat  over  one-sixth;    that  is, 
brought  so  much  nearer  the  numbers  of  the  foreign. 

(2)  The  foreign  population  is  engaged  somewhat 
less  than  the  native  at  in-door  and  sedentary  employ- 
ments, and  in  so  far  are  likely  to  be  more  vigorous. 

(3)  But  the  grand  cause  for  the  remarkable  differ- 
ence we  have  observed  is  found  in  the  fact,  that  the 
foreign  population  are  far  less  influenced  by  pruden- 
tial considerations  and  social  restraint.    They  there- 
fore enter  the  marriage  state  with  less  regard  to  their 
ability  to  support  a  family  respectably.    Destitution, 
in  the  sense  which  restricts  propagation,  hardly  ex- 
ists among  them.     Indeed,  it  may  be  said  that  they 
are  actually  richer,  according  to  the  standard  of  living 
they  were  accustomed  to  at  home,  than  are  our  native 
population.   Consequently,  they  do  not  for  a  moment 
hesitate  to  marry  from  any  fear  of  want  or  of  losing 
caste  by  poverty. 

On  the  other  hand,  the  resistance  to  marriage  from 
a  more  costly  style  of  living,  is  constantly  increasing 
with  the  native  population,  among  whom  the  stand- 
ard of  family  expenditures  rises  rapidly  with  the 
finer  culture,  the  more  elegant  arts,  and  the  greater 
social  vivacity  of  each  new  year.  The  foreign  popu- 

37* 


438  CONSUMPTION. 

lation  can  get  food,  shelter,  and  clothing  of  some 
kind.  That  is  their  idea  of  life.  Why,  then,  should 
they  not  marry,  and  rear  families?  To  show  how 
this  cause  operates  to  produce  marriage  among  them, 
we  refer  again  to  the  statistics  of  Massachusetts 
(1860): 

American  marriages 7,381 

Foreign            " 4,057 

One  party  foreign          943 

Nativity  not  stated 447 

Total 12,828 

In  1870,  the  marriages  were  : 

American 8,360 

Foreign 4,271 

Mixed 2,075 

Not  stated 15 

Total 14,721 

According  to  population,  the  purely  American 
marriages  should  have  been  about  18,000,  or  consid- 
erably more  than  twice  the  actual  number.  Here 
we  find  the  force  of  social  restraint  acting  on  the 
native  population. 

Such,  then,  are  the  principal  causes  which  limit 
population.  The  course  of  propagation,  as  affected 
by  subsistence  alone,  may  be  described  as  follows: 
From  a  given  point  destitution  will  bear  it  down  by 
the  most  painful  pressure,  involving  social  and  indi- 
vidual misery  and  degradation.  Under  a  scant  and 
difficult  livelihood  it  will  bear  upward  by  its  inhe- 
rent forces,  but  slowly  and  with  constant  opposition. 
Competence  gives  it  an  assured  and  regular  course; 
relieving  from  all  considerations  of  physical  main- 
tenance, but  substituting  therefor  healthful  and  har- 


IMMIGRATION.  439 

monious  restraints,  hardly  less  powerful.  Under 
these  influences,  society  gains  in  wealth,  leisure,  and 
comfort,  and  is  able  to  organize,  educate,  and  con- 
trol its  population.  Every  child  born  into  this  con- 
dition may  be  born  to  health  and  happiness,  and  to 
be  a  strength  and  ornament  to  the  state. 

We  have  thus  far  spoken  of  the  reproductive 
forces  without  recognizing  the  differences  originating 
in  diversities  of  climate  and  ethnical  stock.  These 
unquestionably  exist,  and  greatly  modify  the  facts 
of  propagation  ;  but,  as  they  are  local  and  peculiar, 
we  shall  enter  upon  no  discussion  of  them. 


CHAPTEE   VII. 

IMMIGRATION. 

No  other  country  is  so  much  influenced  in  its 
population  by  immigration,  probably,  as  the  United 
States.  The  whole  number  of  persons  of  foreign 
birth  arriving  from  1820  to  1870  was  7,803,865. 
The  number  in  the  country  by  the  census  of  1870 
was  5,566,546,  showing  that  of  the  whole  number 
of  immigrants  for  fifty  years  2,237,319  had  died  or 
left  the  country.  We  make  the  following  compari- 
sons, drawn  from  facts  found  in  the  last  census : 

1.  Total  foreign  born,  as  above 5,566,546 

2.  Total  having  both  parents  foreign  born     ....     9,734,845 

3.  Total  having  one  or  both  parents  foreign  born   .     .  10,892,015 

Deducting  No.  1  from  No.  2,  we  find  the  number 


440  CONSUMPTION. 

of  persons  born  of  exclusively  foreign  parentage  to 
be  4,168,299,  equal  to  near  eleven  per  cent,  of  the 
entire  population  of  the  country. 

Deducting  No.  2  from  No.  3,  we  have  the  number  of 
children  of  mixed  parentage  1,157,170,  equal  to  near 
twenty-five  per  cent,  of  the  entire  number  born  ex- 
clusively of  foreign  parents.  This  fact  is  interesting, 
as  showing  the  rate  at  which  amalgamation  is  taking 
place  between  the  native  element  and  the  foreign. 

In  looking  at  the  statistics  of  immigration  for 
several  years  past  we  find  that  3,857,850  arrived 
during  twelve  years  ending  December  31,  1870. 
This  number  is  equal  to  one-half  of  all  that  have 
arrived  since  1820,  so  that  the  immigration  of  the 
last  twelve  years  is  equal  to  that  of  the  thirty-eight 
years  preceding,  that  is,  in  a  more  than  triple  ratio. 

Two  prominent  questions  present  themselves  in 
regard  to  the  effects  of  immigration  :  first,  upon  the 
general  wealth  of  the  nation;  and  secondly,  upon 
the  rate  of  wages. 

That  the  aggregate  wealth  of  the  country  is  in- 
creased by  great  influx  of  foreign  laborers  there 
can  be  no  doubt,  because,  as  a  general  fact,  they 
produce  of  values  more  than  they  actually  destroy. 
They  open  and  improve  farms,  they  build  houses, 
and  make  improvements  which  are  of  a  permanent 
character,  and,  therefore,  the  general  inventory  of 
wealth  must  be  enlarged.  Whether  the  average 
wealth  per  capita  has  been  increased  by  the  im- 
mense immigration  of  the  last  twelve  years  is  un- 
certain, nor  is  it  of  much  importance. 

Effect  on  wages.  In  regard  to  this  point  we  may 
notice  the  fact  that,  notwithstanding  the  large  im- 


IMMIGRATION.  441 

migration  of  the  last  fifty  years,  the  rate  of  wages, 
not  only  nominal,  but  real,  has  been  constantly  in- 
creasing. The  explanation  is  that  the  immigrant  is 
a  consumer  as  well  as  producer,  and  consumes,  in 
some  form,  all  he  produces, — that  is,  he  uses  in  the 
supply  of  his  daily  wants,  or  for  a  farm,  a  habita- 
tion, and  their  indispensable  appendages,  all  that  he 
earns.  The  labor  market  is  really  no  more  crowded 
than  if  he  had  stayed  at  home.  His  wants  demand 
all  his  labor  and  supply;  therefore  immigration  has 
no  tendency  to  reduce  wages,  and  will  not  have, 
until  our  vast  capital  in  virgin  lands  has  been  ab- 
sorbed and  put  to  use. 

EFFECT    OF   IMMIGRATION    ON    THE    CONDITION    OF    THE 
NATIVE   LABORER. 

Has  the  physical  condition  and  social  position  of 
the  native  laborer  been  unfavorably  affected  by  the 
influx  of  foreigners  ?  We  answer  in  the  negative, 
because  the  general  intelligence  and  enterprise  of  the 
native  population  are  far  in  advance  of  those  of  the 
classes  who  come  to  this  country  to  find  employ- 
ment, and  consequently  the  former  take  the  lead  in 
all  industrial  undertakings.  Visit  our  great  work- 
shops and  factories,  and  who  are  the  leading  work- 
men, the  overseers,  and  managers?  Foreigners? 
Very  seldom.  So  in  regard  to  female  labor.  Thirty 
years  ago  the  operatives  in  our  mills  were  American 
children  and  girls.  Are  they  so  now  ?  Certainly 
not.  Their  places  have  been  taken  by  Irish,  French, 
and  other  immigrants,  and  the  young  women  and 
children  of  American  descent  are  in  better  employ- 
ments, with  increased  compensation. 


442  CONSUMPTION. 

Looking  at  the  results,  then,  the  native  laborer 
has  nothing  to  fear  from  this  influx  of  foreigners. 
The  development  of  the  natural  resources  of  the 
nation  is  hastened  by  it,  while  the  original  inhabit- 
ants, so  far  as  wages  and  the  rewards  of  labor  are 
concerned,  are  improved  rather  than  injured  thereby. 

Chinese  immigration.  All  this  is  more  emphatically 
true  in  regard  to  the  Chinese  laborer.  He  is  docile, 
industrious,  economical,  and  has  all  those  habits  and 
traits  of  character  that  tit  him  for  a  useful  employe. 
Like  a  labor-saving  machine,  he  produces  commo- 
dities at  a  less  cost  than  other  laborers,  and  the  ad- 
vantage inures  to  all  others  as  well  as  himself. 

That  there  is  a  great  difference  in  the  physical  and 
moral  quality  of  immigrants  arising  from  ethnic  pe- 
culiarities and  characteristics,  there  is  no  doubt ; 
that  some  are  far  more  desirable  as  settlers  and  citi- 
zens than  others  cannot  be  disputed,  but  American 
institutions  receive  all,  tolerate  all ;  must  educate 
and  elevate  all,  fusing  the  whole  if  possible  into  a 
homogeneous,  enlightened,  and  prosperous  people. 
Such  is  the  grand  experiment  upon  which  for  weal 
or  woe  the  American  republic  has  entered. 


RIGHT   CONSUMPTION.  443 


CHAPTER   VIII. 

IMPORTANCE    OF   A   RIGHT   CONSUMPTION. 

THIS  has  been  already  shown  by  the  light  of  our 
definition  of  consumption.  It  has  all  the  importance 
which  belongs  to  the  science  itself. 

Consumption  makes  use  of  the  wealth  which  pro- 
duction has  brought  about  with  all  the  world's  in- 
dustrial energy.  It  determines  how  each  appreci- 
able atom  shall  be  applied :  whether  to  degrade,  or 
to  elevate;  whether,  like  fruitful  seed,  to  reappear 
in  harvest,  or,  like  a  virulent  acid,  to  destroy  the 
very  vessel  in  which  it  is  placed ;  whether  to  set 
forth  the  humble  household  of  the  laborer,  or  to 
glearn  a  moment  in  the  halls  of  revelry;  whether  to 
feed  a  thousand  workmen  on  the  temple  of  national 
industry,  or  to  melt  out  of  sight,  like  Cleopatra's 
jewel,  in  wanton  luxury. 

All  the  moral  and  social  interest  that  belongs  to 
wealth,  belongs  to  its  use;  for  as  that  is  right  or 
wrong,  healthful  or  hurtful,  so  wealth  itself  is  a 
blessing  or  a  curse;  so  science  should  strive  after  it 
with  earnest  efforts,  or  guard  against  with  the  same 
wise  precaution  and  thorough  research  which  keep 
out  the  plague. 

There  is  a  right  consumption  of  wealth  that  would 
bring  comfort,  health,  and  education  within  the 
reach  of  every  human  being  not  born  incapable  of 
receiving  them  ;  that  would  make  poverty  impossi- 
ble on  the  earth;  that  would  dispense  with  half  the 


444  CONSUMPTION. 

inducements  to  crime  ;  that  would  beautify  every 
home,  and  lighten  every  work.  It  may  not  be  wise 
to  expect  the  quick  attainment  of  such  a  result,  or 
worth  while  to  prepare  our  robes  for  such  an  ascen- 
sion of  humanity;  but  just  as  far  as  the  consump- 
tion of  wealth  can  be  affected  by  human  laws,  or 
customs  and  agreements,  in  so  far  may  this  end  bo 
approached  in  every  day  of  time.  It  is  only  one 
part  of  this  possibility  at  which  the  poet  looked, 
when  he  said, — 

"Were  half  the  power  that  fills  the  world  with  terrror, 

Were  half  the  wealth  bestowed  on  camps  and  courts, 
Given  to  redeem  the  human  mind  from  error, 
There  were  no  need  of  arsenals  and  forts." 

The  mind  can  hardly  lift  itself  to  see — 

"What  might  be  done,  if  men  were  wise." 

Yet  political  economy  is  a  "  dismal  science,"  in- 
deed, if  we  cannot  look  on  to  the  gradual  ameliora- 
tion of  our  human  condition,  not  by  miracle  from 
the  earth  or  the  air,  but  by  a  wiser  use  of  wealth, 
for  kind  purposes  created  and  bestowed, — 

"All  slavery,  w'arfare,  lies  and  wrongs, 
All  vice  and  crime  might  die  together ; 

And  wine  and  corn, 

To  each  man  born, 
Be  free  as  warmth  in  summer  weather." 

Not  only  does  all  the  advantage  of  present  or  ac- 
cumulated wealth  depend  on  the  use  made  of  it  in 
consumption,  but  the  very  existence  of  future  wealth 
is  decided  on  the  same  ground. 

We  have  said  that  wealth  has  its  genei'ations.  The 
life  of  man  is  brief,  but  he  outlives  property.  A  few 


RIGHT   COXSUMPTION.  445 

articles  of  value  may  endure  for  centuries;  but,  in 
the  average,  their  term  is  very  short  Simply  by 
wear  and  tear,  the  earth  would  be  left  destitute  in  a 
few  years,  if  no  provision  were  made  for  reproduc- 
tion. Our  kind  is  placed  on  the  verge  of  such  a 
chance,  and  can  never  go  away  from  it.  The  dreary 
desolation  of  many  nations  illustrates  the  tremen- 
dous possibilities  that  lie  in  the  use  made  of  wealth. 

We  are  accustomed  to  things  as  they  have  been. 
It  is  difficult  to  appreciate  even  that  which  we  know 
might  be.  There  is  no  economical  reason  why  every 
people  on  the  face  of  the  earth  should  not  be  rich, 
prosperous,  and  independent;  every  person  free,  com- 
fortable, ambitious,  with  plenty  at  hand,  and  every- 
thing to  hope  for.  As  it  is,  the  homes  of  competence 
or  decency  are,  the  world  over,  hardly  more  than 
islands  struggling  up  from  the  ocean ;  a  few  spots 
redeemed  from  misery  and  ruin. 

This  advance  towards  economic  good  is  not  a  piece 
of  work  to  be  paid  for  only  when  finished.  If  the 
grand  result  seems  hopelessly  distant,  every  step 
towards  it  does  yet  receive  its  reward ;  every  effort 
brings  something  of  fruition.  No  government  or 
individual  conforms,  for  a  single  act,  to  right  prin- 
ciples of  consumption  ;  but  the  community  gains 
palpably  by  it:  perhaps  the  "  last  straw"  of  taxation 
is  removed,  or  a  capitalist  offers  employment  to  a 
starving  workman* 

There  have  been  efforts  to  restrict  political 
economy,  so  that  it  should  have  no  occasion  to  ask 
these  questions;  to  cut  off  all  that  view  which  looks 
out  on  the  field  of  reproduction ;  to  shut  up  our  in- 
quiries to  the  immediate,  present  creation  of  wealth, 

38 


446  CONSUMPTION. 

its  exchange,  distribution,  and  consumption,  with- 
out regard  to  ultimate  effects,  and  considering  one 
article  of  value  as  equally  commendable  with  any 
for  which  it  will  exchange.  Such  a  mode  of  treat- 
ment practically  detaches  the  department  of  con- 
sumption from  the  science. 

A  sagacious  and  generally  correct  writer*  has  even 
gone  so  far  as  to  announce,  "if  a  laborer  is  willing 
to  work  all  day  for  a  quart  of  whisky  to  get 
drunk  upon,  political  economy  does  not  question  his 
wisdom." 

It  is,  of  course,  within  the  discretion  of  any  author 
to  confine  his  inquiries  so  narrowly,  and  to  erect 
them  into  a  consistent  system ;  but  such  a  system 
will  have  little  of  that  interest  which  attaches  to  a 
scheme  that  considers  the  industrial  interests  of  man 
as  a  whole,  and  for  all  time.  It  may  be  a  science  of 
political  economy,  but  not  the  science,  as  we  choose 
to  regard  it. 

If  the  laborer  expends  his  day's  earnings  on  a 
quart  of  whisky,  he  will,  most  likely,  be  disabled 
one  day  after.  The  account  with  society  will  stand, 
at  the  close  of  the  second  day,  as  follows  :  one  day's 
work  done,  of  which  the  employer,  and  consequently 
society,  has  the  advantage  ;  no  wages  laid  up  ;  some- 
thing taken  off  the  health  of  the  laborer,  and  the 
order  of  the  community.  But  if  the  earnings  are 
spent  on  tools  or  the  education  of  self  and  family, 
or  on  personal  support,  the  account  will  read  quite 
otherwise  :  two  days'  work  done,  of  which  the  em- 
ployer and  society  obtain  the  advantage ;  two  days' 

*  Prof.  Newcombe,  in  his  "  Financial  Policy." 


RIGHT    CONSUMPTION.  447 

wages  in  the  hands  of  the  laborer,  to  be  applied  to 
the  rearing  of  a  useful  and  self-respecting  family,  to 
the  maintenance  of  government,  to  the  increase  or 
perfection  of  tools,  or  to  wholesome  enjoyment  and 
culture. 

It  is  not,  of  course,  possible,  that,  from  a  moral 
standpoint,  there  can  be  any  question  as  to  the  im- 
portance of  a  right  consumption  ;  but  does  not  the 
same  interest  attach  to  it  in  the  light  of  political 
economy,  considered  merely  as  seeking  to  effect  the 
largest  production,  and  the  most  beneficent  distri- 
bution of  wealth  ?  We  do  not  ask  whether  such 
inquiries  cannot  properly  be  received  into  the  science, 
but  whether  any  scheme  can  be  respectably  complete 
which  does  not  embrace  them.  It  must  not,  of 
course,  look  at  any  question  in  a  purely  moral  light. 
Yet  the  two  interests  will  not  be  found  widely  and 
permanently  apart.  Political  economy  has  for  its 
end  the  economic  good  of  society  on  the  whole,  and 
in  the  long-run. 

We  have  used  a  phrase  which  explains  itself,  and 
which  has  already  received  various  illustrations  in 
what  has  gone  before.  But  it  may  be  worth  while 
to  fix  and  detain  in  positive  shape  the  general  im- 
pression we  have  of  it. 

WHAT   IS   THE    ECONOMIC    GOOD? 

It  is  that  application  of  the  industrial  faculties  to 
the  agencies  of  matter  which  will  bring  out,  easiest 
and  fullest,  the  satisfaction  of  those  desires  which  are 
healthful  and  harmonious  in  the  nature  of  man. 

Does  this  imply  the  satisfaction  of  the  greatest 


448  CONSUMPTION. 

amount  of  desires,  if,  indeed,  they  can  be  thus 
spoken  of  in  aggregation  ?  Not  necessarily,  by  the 
terms  of  our  definition ;  yet  practically  we  believe 
it  is  true,  that,  taking  in  all  of  life  and  the  whole  of 
society,  a  greater  satisfaction  will  be  obtained  by 
ministering  to  those  desires  which  are  natural  and 
reasonable,  than  by  catering  to  artificial  tastes,  de- 
praved appetites,  and  violent  passions. 

Does  it  imply  the  greatest  possible  creation  of 
values  ? 

Again  we  say,  not  necessarily;  and  yet  it  is  un- 
doubtedly true,  that  there  is  no  surer  way  of  secur- 
ing the  best  satisfaction  of  the  greatest  amount  of 
desires,  than  by  striving  for  the  accumulation  of  the 
largest  possible  wealth.  There  may  be,  will  cer- 
tainly be,  a  portion  of  such  wealth  that  does  not 
tend  to  improve  its  possessor,  either  as  to  character 
or  condition  ;  there  will  be  a  portion  that  will  not 
receive  its  best  application,  either  morally  or  eco- 
nomically, just  as  the  nourishing  rain  falls  not  less  on 
the  streams  that  do  not  need  it,  and  on  the  stony 
ground  that  will  not  profit  by  it,  than  upon  the  grass 
and  the  grains  that  are  thirsty  for  it,  and  will  repay 
it  in  a  plentiful  harvest.  But  this  is  the  way  of 
earth.  If  human  laws  and  institutions  do  not  inter- 
fere to  prevent,  the  natural  order  of  things  will  be 
sure  to  bring  out  the  best  physical  condition  of  man- 
kind, through  the  greatest  creation  of  values. 

It  will  he  observed,  that  this  definition  of  the  eco- 
nomic good  requires  an  equitable  distribution  of 
wealth,  since  the  desires  of  one  can  be  but  poorly 
satisfied  out  of  the  possessions  of  another.  We 
should  therefore  regard  with  more  complacency  a 


RIGHT    CONSUMPTION.  449 

certain  amount  of  values,  fairly  divided,  than  a  much 
greater  amount  heaped  in  wasteful  and  unjust  ag- 
gregations, or  bestowed  on  those  that  can  neither 
employ  nor  enjoy  it.  But  this,  again,  we  leave  to 
the  operation  of  natural  laws,  when  undisturbed  by 
legislation  and  prescription,  confident  that  a  better 
state  of  things  will  result  than  can  be  brought  about 
by  man's  wisdom. 

To  sum  up,  then :  Although  much  may  be  pro- 
duced that  does  not  satisfy  any  wholesome  or  lawful 
desire  of  man's  being;  although  much  .inequality 
and  injustice  may  take  place  in  distribution,  which 
shall  so  far  neutralize  the  bounty  of  nature,  and  the 
industry  of  man ;  and  although  the  greatest  wealth 
is  not  logically  coincident  with  the  highest  economic 
good, — we  can  yet  accept  the  former  as  the  end  and 
aim  of  our  science,  satisfied  it  is  in  this  shape  that 
the  latter  is  to  come  to  us. 


38* 


INDEX. 


Agriculture,  effected  by  transmuta- 
tion t  38 ;  the  base  of  the  pyramid 
of  production,  38 ;  furnishes  men 
and  materials  for  other  depart- 
ments of  production,  39  ;  its  pro- 
ducts not  correctly  measured  by 
mixed  currency,  220. 

Amsterdam,  Bank  of,  243. 

Apprenticeships,  shortened  by  the 
division  of  labor,  38;  interfer- 
ence with,  despotic  and  disadvan- 
tageous, 310. 

Art,  economy  of,  427. 

Balance  of  trade,  132. 

Banking  (Free),  247;  joint  stock, 
profitable  in  England,  237. 

Banking,  profitable  without  issue 
of  notes,  237 ;  banks  belong  to 
civilization,  238;  national  bank 
system,  250  ;  differs  from  the  State 
bank  system,  258  ;  resembles  it  in 
what?  253  ;  statistics  showing  the 
character  of  this  currency,  255- 
257.  Savings-banks,  200. 

Barter,  inconvenience  of,  235. 

Bastiat,  quoted  on  value,  24  et  seq. 

Bills  of  exchange,  264;  the  barome- 
ter of  trade,  269;  are  they  cur- 
rency? 271. 

Book  accounts,  262. 

Boot  and  shoe  manufacture  never 
protected,  112;  steady  growth 
and  prosperity  of,  112. 

Bounties  preferable  to  duties,  344. 

British  exchange,  269;  why  at  a 
high  premium,  269. 

Burke,  quoted,  247. 

Capital,  definition  of,  32  and  64 ;  its 
forms,  32;  growth,  33;  relations 
to  labor,  34;  not  the  antagonist 


of  labor,  35 ;  co-operation  with 
labor,  64;  power  of,  increased  by 
aggregation,  62 ;  origin  of,  66  ; 
fixed,  66;  circulating,  67 ;  pro- 
ductive and  unproductive,  68. 
Union  of  capital  and  labor,  70  ; 
when  most  productive,  70,  71 ;  at 
what  rate  it  should  increase,  73  ; 
should  correspond  with  popula- 
tion, 73;  can  there  be  a  surplus? 
74. 

Charity  and  poor  laws,  411;  what 
classes  entitled  to  it,  412  et  seq.  ; 
how  and  by  whom  administered, 
414. 

Clearing-house  certificates,  250. 

Cobden,  Richard,  quoted,  note,  241. 

Coinage,  145 ;  adaptation  of  the 
precious  metals  to,  142  ;  what  the 
government  does  by  coinage,  146. 

Consumption,  391;  definition  of, 
392 ;  importance  of  a  right  con- 
sumption, 443  ;  combinations  to 
raise  wages,  295. 

Contracts,  effects  of  credit  currency 
upon,  148. 

Convertibility  distinguished  from 
redeemableness,  153. 

Co  -  operative  associations,  296  ; 
Rochdale  movement,  296  ;  condi- 
tions in  regard  to  co-operation, 
298;  conditions  of  success,  299. 

Co-operative  copartnerships,  301. 

Culture,  economic,  80. 

Currency,  four  kinds,  money,  140 ; 
credit  currency,  146 ;  effects  of, 
on  prices,  147  ;  mixed,  151 ;  table 
of,  for  26  years,  175  ;  fluctuations 
of,  175  ;  diagram,  176  ;  proportion 
of  specie  to  circulation,  table, 
178;  mercantile,  242;  national 
bank,  250;  characteristics  of  the 
(451) 


452 


INDEX. 


different  kinds,  250.     See  mixed 
currency,  168. 

Debt,  national,  conversion  into  capi- 
tal, 365 ;  practicability  and  ad- 
vantages of,  366.  Fallacies  re- 
specting the  payment  of  the 
national  debt,  372. 

Deferred  income,  352. 

Deposits,  analysis  of,  162;  perma- 
nent or  compulsory,  163 ;  fidu- 
ciary,163  ;  active,  164  ;  dangerous, 
164;  are  deposits  currency?  166. 

Dilemma  of  mixed-currency  banks, 
183. 

Disarmament,  general  and  simul- 
taneous, 426. 

Distribution,  274;  arises  from  divi- 
sion of  labor,  274;  complete  in 
wages,  profits,  interest,  and  taxa- 
tion, 276. 

Dividends  —  profits  upon  business 
done  by  proxy,  318. 

Duties,  kinds  of,  ad  valorem  and 
specific,  339  ;  unequal  bearings 
of,  340 ;  enhances  cost  of  pro- 
tected articles,  342. 

Economic  culture,  80  ;  the  field  of, 
82.  The  economic  good,  447. 

Education  of  the  laborer,  284;  pub- 
lic economy  of,  427. 

Elliott,  E.  B.,  quoted  as  authority, 
366. 

English  joint-stock  banks  profit- 
able, 237  ;  statistics  of,  237. 

England,  the  best  illustration  of  the 
want  of  a  sound  currency,  244. 

Entrepreneur,  311. 

Evidences  of  debt,  different  kinds 
of,  252. 

Exchange,  36  ;  instruments  of,  136j 
indirec^,  266 ;  domestic  and  for- 
eign, 266;  natural  rate  of,  268; 
British,  249  ;  rapidity  of,  affecting 
profits,  316. 

Exports,  taxation  of,  353. 

Fallacies  of  protection,  109.  Infant 
manufactures,  109.  Development 
of  manufactures,  112.  Raising 
wages,  1 14.  Defence  against  pau- 
per labor,  115.  Home  market, 
117.  Exhaustion  of  soil,  118. 
Protection  of  capital,  119.  Mer- 
cantile interests,  120. 


Fallacies  regarding  mixed  currency, 
— increases  capital,  228  ;  cheaper 
than  a  value  currency,  229 ;  a 
cause  of  prosperity,  231 ;  a  neces- 
sity, not  gold  and  silver  enough, 
232 ;  favorable  to  small  capital- 
ists, 235 ;  could  have  no  banks 
without,  236;  can  be  regulated 
by  law,  238.  Banks  should  stave 
off  suspension,  239;  benefits 
stockholders,  240. 

Fawcett,  Prof.,  quoted,  296. 

Flour  and  cotton,  prices  of,  table 
6,  222. 

Foreign  indebtedness,  economy  of, 
368 ;  fallacies  respecting,  370, 
Free  banking,  247. 

Geneva,  Bank  of,  243. 

Gold,  its  qualities,  143;  abrasion 
of,  144. 

Gold  notes,  248. 

Government,  economically  best  that 
govern  least,  101  ;  debt,  365;  its 
payment  practicable,  366. 

Hamburg,  Bank  of,  243. 

Hours  of  labor,  reduction  of,  302 ; 
economic  effect  on  the  laborer, 
305  ;  effect  on  capital,  307. 

Immigration,  439 ;  effects  upon 
American  labor,  441  ;  Chinese, 
442. 

Income  tax,  349,  character  of  in- 
come tax,  350  ;  estimated  income, 
352. 

Industry,  how  diversified,  97. 

Infant  manufactures,  109. 

Inheritance  and  bequest,  laws  of, 
384. 

Interest,  319;  effect  of  usury  laws 
upon,  320  ;  rate  of,  determined 
by  the  condition  of  society,  323. 

Inventions  hastened  by  division  of 
labor,  47. 

Ireland,  population  before  the  fam- 
ine, note,  44 ;  her  capital  not 
proportionate  to  labor,  73. 

Iron,  advantages  for  producing  it 
in  the  United  States,  102;  why 
all  required  is  not  made,  103  ; 
effects  of  protection  upon,  106. 

Joint -stock  banks  in  England, 
237. 


INDEX. 


453 


Labor,  definition  of,  31.  "Work  of 
slaves  not  labor,  32;  division  of, 
44;  advantages  of,  46;  limitations 
of,  52 ;  recognition  of,  in  the  pro- 
fessions, 54;  disadvantages  of, 
55;  enervates,  55;  cramps  the 
mind,  57;  compensation,  57;  less- 
ens the  number  of  employers,  60; 
concentrates  capital  and  gives  it 
power,  62.  Productive  and  unpro- 
ductive labor  examined,  80.  Three 
classes  of  labor,  274 ;  physical, 
mental,  subsidiary,  275;  receives 
its  reward  in  three  forms,  275; 
reduction  of  hours  of,  302  ;  eco- 
nomic effects  of,  on  production, 
304;  effects  upon  capital,  307; 
effects  of  foreign  immigration 
upon,  441.  Levi,  Prof.,  quoted, 
402. 

Labor  combinations,  291.  Right  of 
laborers  to  combine,  291. 

Laborer,  education  of,  284;  frugality 
of,  285.  Distinction  of  sex,  286. 
Why  females  have  less  wages, 
287 ;  a  favorable  change  in  pro- 
gress, 68.  Economic  effects  of  a  re- 
duction of  the  hours  of  labor  upon 
the  laborer,  305.  The  laborer  'a 
consumer  as  well  as  producer,  306. 

Land  the  great  instrument  for  pro- 
duction of  values,  104;  great 
advantages  of  a  public  domain, 
105. 

Laws  of  inheritance  and  bequest,384. 

Learning  and  art,  403. 

Learning  as  affecting  wages,  284. 

Licenses,  or  special  taxes,  348. 

Mercantile  currency,  242 ;  a  substi- 
tute or  certified  currency,  242  • 
practicability  of,  243  ;  illustrated, 
Bank  of  Genoa,  of  Amsterdam, 
of  Hamburg,  243.  England  illus- 
trates the  necessity  of,  244.  Mer- 
cantile currency,  banking  suffi- 
ciently profitable  without  issues, 
246.  Gold  notes,  248. 

Mill,  John  Stuart,  quoted,  note,  311. 

Mixed  currency,  151  ;  quantity  of, 
152;  banks,  liabilities  of,  154; 
resources,  156;  statistics  of,  158; 
fluctuations  of,  168,  174;  not 
satisfactory,  169 ;  not  governed 
by  laws  of  value,  169  ;  expansions 
of,  170;  contractions  of,  171.  Ta- 


bles, 175  ;  Diagram,  No.  1,  176; 
extreme  fluctuations  of,  a  table, 
178;  composition  of  tables  2  and 
3,  179;  as  a  medium  of  exchange, 
180;  unreliability  of,  181  ;  defec- 
tive as  a  standard  of  value,  1 84 ; 
how  it  does  perform  this  function, 
188;  effect  on  prices,  Diagram 
No.  2,  193 ;  endangers  domestic 
tranquillity,  199,  and  national 
safety,  202  ;  discourages  domestic 
industry,  205 ;  Diagram  No.  3, 
209;  governs  importations,  211; 
causes  fluctuations  in  rates  of  in- 
terest, 216  ;  Diagram  No.  4,  214  ; 
Diagram  No.  5,  217;  unequal 
effects  upon  different  interests, 
220  ;  injurious  to  agriculture  espe 
cially,  220;  effects  on  manufac- 
tures, 225 ;  on  trade  and  trans- 
portation, 226:  fallacies  respect- 
ing,— see  under  that  head,  228. 
Money,  a  standard  of  value,  138, 
139,  141. 

Nation,  how  enriched  by  trade,  97. 

National  debt,  conversion  into  capi- 
tal, 365  ;  its  practicability,  366 ; 
results  of,  367  ;  fallacies  respect- 
ing, 372. 

National  banks,  250. 

Notes,  gold,  248. 

Notes  of  hand,  263. 

Page,  "  Hardcastle,"  of  Bank  of 
England,  quoted,  241. 

Paper,  effects  of  war  protection 
upon  its  manufacture,  108. 

Partnership  in  profits,  301. 

Political  economy,  the  science  of 
wealth,  17;  what  it  teaches,  18;  a 
positive  science,  19;  embarrassed 
by  legislation,  20  ;  by  prejudice 
and  self-interest,  21;  by  loose 
phraseology,  21;  the  science  of 
values,  22  ;  division  of  the  science, 
36 ;  what  it  has  for  its  end,  447. 

Poll-tax  payers,  356. 

Poor  laws,  411. 

Population,  430  ;  fallacies  respect- 
ing, 431.  Statistics  of  births,  435  ; 
of  marriages,  438. 

Precious  metals,  their  adaptation  to 
use  as  currency,  142 ;  assumed 
deficiency  for  the  wants  of  trade, 
232. 


454 


INDEX. 


Price,  what  is  it?  189.  Table  of 
prices,  191  ;  relation  to  currency, 
193.  Prices  of  agricultural  pro- 
ducts, 220. 

Primogeniture  and  entail,  387. 

Production,  what  it  is,  38.  Trans- 
mutation, 40.  Transformation, 
40.  Transportation,  42;  condi- 
tion of  the  highest,  44;  compari- 
son with  Great  Britain,  73. 

Profits,  311;  denned,  311.  The 
entrepreneur,  or  business  man's 
reward,  311.  Result  from  the 
union  of  capital  and  labor,  312; 
profits  on  business  done,  not  on 
capital  employed.  314:  illustrated, 
314;  rate  of,  314;  affected  by 
rapidity  of  exchange,  316.  The 
wages  of  the  employer,  317. 

Protection,  term  first  used,  99  ;  de- 
fined, 99;  designed  to  diminish 
imports  and  direct  industry  into 
new  channels,  101;  effect  of  the 
protective  policy,  106.  Protective 
theory,  fallacies  of,  109;  a  war  of 
interests,  121 ;  to  support  existing 
manufactures,  124;  the  practical 
difficulty  of,  125  ;  final  argument 
for,  126.  Protection  and  currency, 
207. 

Rent  implies  ownership  of  land, 
325 ;  how  it  arises,  326 ;  from 
location,  327;  difference  of  fer- 
tility, 328;  population,  329;  ap- 
plication of  capital,  329 ;  laud 
appendages,  330. 

Sanitary  statistics,  59. 

Savings-banks,  200. 

Shoe  trade,  112. 

Smith,    Adam,    quoted,    on    paper 

money,  231;  on  taxation,  334. 
Stamps,  347. 
Standard  of  value,  what  is  it?  185; 

what  in  the  United  States,  186. 
Steel  protection,  122. 
Sterling  exchange,  269. 
Strikes,  294. 
Sumptuary  laws,  405. 

Tariffs,  defined,  100 ;  do  tariffs  ne- 
cessarily diminish  consumption  ? 
100  ;  revenue  tariff  consistent  with 
free  trade,  100.  Several  tariffs, 
208. 


Taxation,  principles  of,  333  ;  forma 
of  American,  338  ;  national,  339  ; 
increased  by  rise  of  home  com- 
modities, 341 ;  customs  an  expen- 
sive mode  of,  343  ;  bounties  pre- 
ferable, 344.  Excise — taxes  on 
disadvantageous  consumption, 
346.  Stamps,  347.  Licenses,  or 
special  taxes,  348 ;  income  tax, 
349  ;  history  of,  349  ;  objection 
to,  350.  Deferred  income,  352.  On 
exports,  353 ;  on  cotton,  354. 
State  taxation,  355;  poll-tax 
payers,  356;  property  and  poll 
tax,  bearings  of,  358  ;  taxation  of 
credit,  360  ;  exemption  of  govern- 
ment bonds,  363. 

Trade,  principles  of,  86  ;  arises  from 
division  of  labor,  86 ;  domestic, 
foreign,  carrying  trade,  87  ;  sub- 
divisions of,  87;  illustration,  88; 
what  communities  will  trade  most? 
89 ;  trade  but  the  territorial  divi- 
sion of  labor,  90  ;  Chinese,  French, 
English,  American,  90  ;  must  pro- 
duce a  surplus  in  order  to  trade, 
91 ;  each  nation  interested  in  the 
general  production,  91 ;  harmo- 
nizes all  the  differences  of  indus- 
try, 92 ;  obstructions  to,  93  ;  physi- 
cal, legal,  conventional,  93;  the 
two  reasons  for  trade,  93 ;  illustra- 
tion of  mutual  interests,  94 ;  true 
of  all  countries,  increases  produc- 
tion, 96 ;  governmental  interfer- 
ence by  obstructing  of,  98  ;  ob- 
structions to,  by  false  currency, 
128  ;  social  obstacles,  130  ;  balance 
of,  132;  how  adjusted,  134. 

Trades'  unions,  292. 

Trades,  unhealthy,  285. 

Trade  and  transportation  class,  226. 

Transmutation,  transformation, 
transportation,  three  forms  of 
production,  38. 

Transportation  obstacles  to  trade, 
130. 

Usury  laws,  effects  of,  on  rate  of 
interest,  320. 

Value,  definition  of,  23;  distin- 
guished from  utility,  27. 

Wages,  276 :  laws  that  govern  wages, 
276;  cost  of  labor  depends  upon, 


INDEX. 


455 


278;  rise  and  fall  of  wages,  280; 
no  speculative  demand  for  wages, 
280 ;  hence  the  laborer  suffers, 
280  ;  never  rise  so  much  as  com- 
modities, 281;  fall  sooner,  281; 
a  difficult  matter  to  determine, 
281;  distinction  of  sex,  286; 
wages  of  school  teachers  in  Mas- 
sachusetts, note,  286 ;  a  new  classi- 
fication of,  289 ;  muscular,  mental, 
moral,  289;  a  universal  rise  of 
no  benefit  to  the  laborer,  306; 
equalization  of,  309. 


Wants,  human,  their  place  in  the 
science  of  wealth,  18. 

War,  finance  of,  418 ;  economy  of 
war  system,  420  ;  a  moral  necessi- 
ty, why  ?  424;  influences  against, 
425 ;  absurdity  of  the  present  war 
system,  425. 

Wealth  defined,  21;  distinguished 
from  capital,  64;  wealth  of  the 
United  States,  72. 

William  of  Orange,  378;  William 
IV.,  397. 

Workmen  better  off  than  formerly, 
280. 


THE   END. 


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